Namibia holds rate steady to counter slow global growth

By www.CentralBankNews.info     Namibia’s central bank held its benchmark repo rate steady at 5.50 percent, repeating that interest rates need to remain low to “support the economy and mitigate, as far as possible, the impact of endured slow growth in many our trading partners.”
    The Bank of Namibia, which has held rates steady this year after cutting by 50 basis points last year, said the country’s economy was resilient and growth this year is forecast at 4.4 percent, down from an estimated 5.0 percent in 2012.
    “Despite ongoing uncertainties in the global economy, domestic growth continues to be relatively strong, while inflationary pressures are low,” the Bank of Namibia said, adding developments were largely in line with its assessment from February.
    So far this year, growth has been driven by higher output from mining, agriculture, manufacturing and construction, while wholesale and retail has contributed less.

    A recent decline in international commodity prices is of a concern as this impacts the mining industry, the bank said, adding that the government budget will support domestic production and consumption through relatively high levels of expenditure and tax relief.

    Namibia’s inflation rate rose to a “manageable” 6.3 percent in March from 6.21 in February, with no changes anticipated in the short to medium-term, the bank said.
    Credit growth also remains rebust, with credit to the business sector the main driver while credit to individuals rose less. The fiscal position of the government has improved, allowing for the build-up of a cash balances with the central bank.
    Foreign reserves are still enough to cover three months of imports and the currency peg, the bank said.
    At its previous meeting in February, the Bank of Namibia also forecast that the economy would grow by 4.4 percent this year and it was keeping its policy rate low to mitigate the impact of slow growth in many trading partners.

    www.CentralBankNews.info

New Zealand holds rate, still sees rate steady through 2013

By www.CentralBankNews.info     New Zealand’s central bank held its Official Cash Rate (OCR) steady at 2.5 percent, as expected, and repeated that “at this point” it still expects to keep the rate steady through 2013.
    The Reserve Bank of New Zealand (RBNZ) said economic growth was picking up with consumer spending on the rise and rebuilding after the Canterbury earthquake gaining momentum, while house price inflation is high in some regions despite already elevated prices.
    “The Bank does not want to see financial or price stability compromised by housing demand getting too far ahead of supply,” RBNZ Governor Graeme Wheeler warned in the bank’s statement.
    On the other hand, fiscal consolidation is constraining demand and drought has lowered agricultural production which has lead to a temporary rise in international dairy prices.
    And the New Zealand dollar “remains overvalued and is higher than projected in March,” Wheeler said, adding:
    “Further appreciation has occurred partly in response to the announcement of a substantial quantitative easing programme in Japan. The high New Zealand dollar continues to be a significant headwind for the tradeables sector, restricting export earnings and encouraging demand for imports.”

    Last month the International Monetary Fund said the New Zealand dollar, known as the kiwi, was overvalued by around 15 percent and any attempt to devalue it through intervention would be futile because global investors were attracted to the currency as it’s a safe place to park money at a time of extreme monetary easing and ultra-low rates in major advanced economies.
     New Zealand’s inflation rate was stable at 0.9 percent in the first quarter from the fourth quarter and the RBNZ expects it to remain close to the bottom of its target range this year.
    The RBNZ, which has held its policy rate steady since March 2011, targets annual inflation of 1-3 percent and forecasts that inflation will gradually rise toward the 2 percent midpoint.
    “At this point, we expect to keep the OCR unchanged through the end of the year,” Wheeler said, repeating the central bank’s policy guidance from March. Last month it also warned that it did not want price stability affected by housing demand getting too far ahead of supply.
    Earlier this month the central bank’s deputy governor, Grant Spencer, said the RBNZ would revise its outlook for interest rates if the rise in house prices and expanding credit starts to fuel excessive consumption and inflationary pressures.
    In the fourth quarter of last year, New Zealand’s Gross Domestic Product rose by 1.5 percent in the fourth quarter from the third quarter for annual growth of 2.5 percent, up from 2.0 percent in the third quarter.

    www.CentralBankNews.info

Gold “Being Lifted by Physical Bar Demand” But Silver “Relatively Weak”

London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 24 April 2013, 07:45 EST

THE U.S. DOLLAR gold price drifted back down towards $1420 per ounce Wednesday morning in London, around 1.3% up on the week so far, amid ongoing reports of strong demand for physical gold bullion.

“The bounce in price-sensitive physical demand, especially in the emerging world, is impressive and has lifted prices,” says HSBC Securities analyst Howard Wen.

Local reports from India, China and the Middle East said today that gold bar premiums remain at multi-year highs as private demand surges following last week’s price slump.

Several major bullion-bank analysts have cut their 2013 price forecasts since last week’s crash. Many, however, are now targeting prices close to current levels at $1425-1450 per ounce.

The US Mint meantime has suspended sales of its smallest American Eagle bullion gold coin, weighing one tenth of an ounce, Reuters reports Wednesday.

“While the one ounce gold bullion coins remain the most popular, demand for the one-tenth ounce coins has remained strong too, with year-to-date demand for these coins up over 118% compared to the same period last year,” says a statement issued to dealers Monday.

“Accordingly, the United States Mint has temporarily suspended sales of its one-tenth ounce gold bullion coins while inventories can be replenished.”

The Mint produced American Eagle bullion coins specifically for investment purposes, selling them to authorized purchasers such as coin dealers rather than direct to the public.

Yesterday saw gold exchange traded funds continue to reduce their bullion holdings, with ETFs tracked by Bloomberg seeing total outflows of 22.5 tonnes.

The world’s biggest gold ETF SPDR Gold Trust (ticker: GLD) accounted for 7.5 tonnes of this, taking its total holdings below 1100 tonnes for the first time since October 2009.

Silver meantime dropped back to $23 an ounce by lunchtime in London, a 1.2% drop on the week. Most other commodities were up on the day, as were most European stock markets, while US Treasuries were little-changed.

The gold-silver ratio, which measures the Dollar price of an ounce of gold divided by the price of an ounce of silver, has risen above 60 for the first time since September 2010.

“[Silver] has so far not been able to achieve any significant price recovery following last week’s slump – in contrast to gold,” says this morning’s commodities note from Commerzbank.

“The relative weakness of the silver price…is thus more likely attributable to weaker industrial demand, which accounts for more than 50% of fabrication demand.”

Over in Europe, economic confidence in Germany has fallen in April, according to the monthly IFO indices published Wednesday. Provisional purchasing managers’ index data released a day earlier meantime indicate German manufacturing has continued to contract this month, and at an accelerated rate, while its services sector has now also started to see worsening conditions.

“The fact that even in the most robust core [Eurozone] country, Germany, the surveys are disappointing lately should have implications for ECB policy,” says Gizem Kara, European economist at BNP Paribas in London, referring to the European Central Bank whose policymakers meet next week in Bratislava.

“The Eurozone economy is so weak and deflationary pressure remains such a force that the region has moved beyond the need for lower rates,” argues Steve Barrow, currency analyst at Standard Bank.

“In spite of thinking that [interest] rates will be cut [next week] we also believe that, whatever the ECB does with rates, it won’t be enough… perhaps the most controversial move we might expect is a cut in the Bank’s deposit rate, for this would take it into negative territory; something that most central banks have avoided.”

 

Barrow also suggests the ECB should consider quantitative easing measures as well as policies aimed at supplying more credit to small businesses.

 

Here in the UK, the Bank of England today extended its Funding for Lending scheme, which offers favorable borrowing rates to banks conditional on their lending to “small and medium-sized enterprises”, to January 2015.

In Italy meantime Enrico Letta, former deputy leader of the Democratic Party (PD), has been given a mandate to form a government by the country’s president Giorgio Napolitano, who days earlier became the first president to be re-elected by parliament.

The PD’s former leader Pier Luigi Bersani resigned last Friday. Italy has been without a government since the general elections two months ago.

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

 

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben can be found on Google+

 

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

 

The Most Unexpected Data Coming Out of Beijing

By WallStreetDaily.com

Here’s a shocker for you, straight from Beijing…

No, I’m not talking about how China’s manufacturing growth unexpectedly cooled in March.

Fears over a slowdown in the world’s second-largest economy are so yesterday’s news.

Especially after we learned roughly two weeks ago that China’s GDP growth rate slid from 7.9% in the fourth quarter of 2012 to 7.7% in the first quarter of 2013. (That’s great by U.S. standards, but stinks for China. It’s actually the slowest rate in over a decade.)

Instead, I’m talking about the fact that China just turned its army loose on the United States. That is, an army of financial attorneys.

Because online retailer, LightInTheBox (Proposed Ticker: LITB), officially filed plans with the SEC to go public.

What’s the big deal?

For one thing, it’s the first Chinese company to file for an IPO on a U.S. exchange in 2013.

More importantly – and I bet you didn’t know this – China-based IPOs have been on a bit of a tear lately.

Consider: Social network operator, YY (YY), which debuted in November 2012, is up 55%. Then there’s online discount retailer, Vipshop (VIPS), which IPO’d in February 2012. It’s up by an even more impressive 341%.

Granted, those are the only two Chinese companies that IPO’d in the United States in the last year or so. But it doesn’t matter. As investors, it only takes one timely investment to meaningfully increase our bottom line. Plus, as the investing adage goes, three makes a trend.

So is LightInTheBox the next Chinese IPO destined for stock market riches? And, more significantly, is it about to signal the start of a trend? Let’s find out…

From Boom to Bust… to Boom?

While no investor lays claim to their very own printing press, back in 2010, they had the next best thing – Chinese IPOs.

A total of 41 China-based companies debuted on U.S. markets that year. In total, they raised almost $4 billion, which accounted for nearly a third of all IPO volume in the United States.

And, like clockwork, many of these Chinese IPOs handed switched-on investors triple-digit gains…

  • Camelot Information Systems (CIS), a provider of financial industry IT services, jumped 117% higher.
  • Youku.com (YOKU), a leading television and online video portal, soared 174%.
  • And HiSoft Tech, a provider of outsourced IT and R&D services – and now known as Pactera Technology International Ltd. (PACT) – jumped 256%.

Of course, the boom eventually busted. (Don’t they all?)

Fraud allegations, accounting irregularities and slowing growth in China quickly sapped investor demand for new Chinese IPOs.

Investor confidence in the previous IPOs weakened, as well.

In fact, the three standout performers above are down 73%, 94% and 84%, respectively, from their peaks. (Ouch!)

This is perhaps the most telling indication of a reversal, though… In 2011, the value of Chinese companies that withdrew from the U.S. market actually exceeded the amount raised by Chinese companies going public!

Like clothing, though, the stock market is cyclical. What goes out of fashion eventually comes back in.

So it’s only a matter of time before Chinese IPOs start listing more frequently on U.S. exchanges again. Especially considering that the U.S. IPO market “is the deepest, most prestigious capital market,” according to Kevin Pollack, Managing Director at Paragon Capital.

Moreover, successful IPOs naturally encourage more activity. Or, as Pollack says, “A long line of companies want to do IPOs here. Having one successful IPO bodes well for the other companies.”

Not to mention that the bust years should have weeded out the lower-quality companies ­- leaving the more compelling opportunities for investors.

With that in mind, let’s find out if LightInTheBox does, indeed, boast high-quality fundamentals – and, in turn, deserves a spot on our coveted “Hot IPO” watch list.

Worth Our Attention, But Not Our Investment Dollars

Longtime Wall Street Daily readers know that I run every IPO, no matter its home country, through a pretty stringent gauntlet. (You can get up to speed here.)

And when I put LightInTheBox through the paces, it doesn’t exactly emerge unscathed…

On the plus side, the company isn’t an unproven startup. It’s been around since late 2007. The $200 million in sales the company booked last year demonstrates its viability, too.

And it’s growing impressively – with plenty more room to run.

Sales increased at least 70% over the last three years. Yet it’s still only scratching the surface of the $521-billion global online retail market, which is expected to expand by 17.7% over the next three years, according to Euromonitor.

On the negative side, though, the company’s debt load is on the rise – up 114% in the last year, to almost $37 million.

More significantly, the company is unprofitable.

That’s particularly troubling, especially since the company has done an admirable job of earning repeat business.

Returning customers now account for roughly 25% of total sales.

But what good is customer loyalty if it doesn’t translate into profits?

It goes without saying that, without profits, the company’s share price is ultimately doomed. And I can’t say that profitability is definitely in the company’s future, either, since LightInTheBox doesn’t benefit from any meaningful or sustainable competitive advantages.

Management wants us to believe otherwise. In the prospectus, they play up their ability to source products cheaply, largely because of the company’s location in China. But the problem is, China is becoming less and less of a source for low-cost goods. So that advantage is fleeting, at best.

The company also boasts about its “proprietary technology platform that integrates every aspect of our business operations, including global marketing, online shopping platforms, supply chain management, fulfillment, logistics and customer service.”

Yet it doesn’t own a single patent. So how proprietary and unique could its technology really be?

Bottom line: LightInTheBox’s IPO promises to be anything but a slam dunk. In fact, underwriters would be well served to price the deal at a compelling valuation to increase the odds of aftermarket success.

Nevertheless, I’ll be carefully monitoring its trading debut. Because a successful launch would signal the formation of a verifiable trend for Chinese IPOs. Something that should lead to more fundamentally sound Chinese companies joining the U.S. market – ones that will ultimately be worthy of our investment dollars.

And since so few investors are paying attention to the latest developments, the potential profits should be that much higher.

Ahead of the tape,

Louis Basenese

Article By WallStreetDaily.com

Original Article: The Most Unexpected Data Coming Out of Beijing

Statistically, Almost Impossible: The Mystery of Gold’s Sudden Collapse

By MoneyMorning.com.au

A senior Italian gentleman lived alone in Dandenong.

He wanted to plant his annual tomato garden, but it was very difficult work, as the ground was hard. His only son, Vinnie, who used to help him, was in prison.

The old man wrote a letter to his son and described his predicament:

‘Dear Vincent, I am feeling pretty sad because it looks like I won’t be able to plant my tomato garden this year. I’m just getting too old to be digging up a garden plot. I know if you were here my troubles would be over. I know you would be happy to dig the plot for me, like in the old days. Love, Papa.’

A few days later he received a letter from his son.

‘Dear Papa, don’t dig up that garden. That’ s where the bodies are buried! Love, Vinnie.’

At 4am the next morning, Victorian police arrived and dug up the entire area…without finding any bodies.

They apologized to the old man and left. That same day the old man received another letter from his son.

‘Dear Papa, go ahead and plant the tomatoes now. That’s the best I could do under the circumstances. Love you, Vinnie.’

Sometimes, and particularly in a market like this, we just need a laugh.

But that’s not the only reason why I tell this story…

You see, our tale of Vinnie and Papa might not be a bad analogy to what we witnessed on the 15th of April 2013.

A Sigma Event

What if Papa is the ailing Federal Reserve, struggling to keep his garden under control, the monetary system?

And Vinnie is the Fed’s corrupt, financial off-spawn, doing what it could…‘under the circumstances’? That is, to undermine gold’s role as competition to fiat currency.

On the 15th of April, the gold market fell so far, and so fast, that statistically the move should have been as good as impossible.

Mathematically, it was a ‘7.5 sigma move’, in other words, under normal conditions it would only happen once every trillion years or so.

I’ll put it another way.

Does the move in mid-April look like it belongs in the rest of this 18 month gold chart?

Nothing to See Here Folks … Move Right Along


Source: StockCharts

This move will be something to tell the grandkids about. It should never have happened.

The move was successfully delivered as the ultimate conviction-tester for gold investors. Because if gold was flawed as a ‘safe-haven’, then maybe we should sell…?

So…what happened next?

To find out, I started local, and asked the guys at Gold Stackers, a Melbourne-based, online dealership, what was happening there. They said:

We’re seeing unprecedented levels of demand for physical bullion — 99% of clients are buying, not selling. Volumes have been five-fold normal for the past three weeks, and it shows no sign of abating. Inventory throughout the industry is running low — we are hearing of outrageous price gouging at some dealers as the price of physical disconnects from paper.

‘Any US originating products such as American Silver Eagles are in very short supply, and the wholesale premiums are being adjusted by US suppliers daily, which naturally flows through to the retail price.

Currently domestic supply of both gold and silver is still strong, however lead times are increasing due to the sheer volume of wholesale orders in the system while retail dealers wait to replenish local stocks. Some businesses however are opting to close their online stores and only deal in-person. Right now the only guaranteed way of locking in prices is to place an order with your dealer and to wait for delivery.

And then I asked Jordan Elisio, Chief Economist at ABC Bullion up in Sydney:

We’ve had a packed showroom all day, a line up 100 deep in our hallway and we’ve had to hire temps to deal with the phone and email ordering. My hunch was that over 90% was on the buy side, but when I asked finance to take a look it was actually closer to 99%. That’s not a misprint — we are seeing roughly 99 physical buyers to every 1 seller right now. Strange end to a bull market I’d say.

Looking outside our shores, the international response has been far more dramatic.

In Beijing, the hub of the biggest gold consuming nation globally, dealers were sold out.

In Hong Kong, it wasn’t much different. This report from a trip to a dealer said it all:

Went to Hang Seng bullion counter yesterday. The line was out the door. It took an hour wait to see a teller. When I asked if people were buying in the dip or selling in panic, she told me that they haven’t had one ounce of gold sold back to them all day. She told me they have sold more gold in 24 hrs than they normally do in 3 months.

It’s the same in Mumbai, Dubai and Shanghai: record queues, buyer-no-seller, metal running out, or gone altogether.

I look forward to seeing the monthly figures for Indian and Chinese gold imports. These two cornerstones of the physical market had already gone into overdrive.

Who knows what the April stats will look like?

So it would seem that whichever of the Fed’s buddies tried to cause mass panic selling — they may have misjudged their prey.

Dr Alex Cowie
Editor, Diggers & Drillers

Join me on Google+

Ed Note: Buying physical gold and silver isn’t hard, but there are easier ways to bet on the gold and silver price. In today’s Money Morning Premium Notes, Kris reveals the eight simple ways Aussie investors can punt on metal prices without going through the hassle of storing, securing and insuring physical metal.

From the Port Phillip Publishing Library

Special Report: TORRENT SIGNAL 3

Daily Reckoning: Wasting the Mining Boom

Money Morning: Stand By for the Recession Rally in Resource Stocks: Take Two

Pursuit of Happiness: Booze, Watches and Fancy Pens — the Alternative Retirement Plan

Diggers and Drillers:
Why You Should Invest in Junior Mining Stocks

Here’s Proof the Physical Silver Market is Alive and Well

By MoneyMorning.com.au

Buyers are viewing the current fall in the price of gold and silver as an opportunity to grab a bargain — not a time to panic.

Have you tried to buy some gold or silver bullion yourself?

You might find it’s not as easy as you thought. I recommend you go through one of the usual dealers to see what I mean (and get it a sensible price). Just be prepared for a wait. This note on the Ainslie Bullion site says it all:

‘We’d like to apologise to our customers at having to close our web store this afternoon. After the craziness last night we have been overwhelmed on the trading floor all day with buying at these prices. With a back log of internet orders as well we could not be confident of having stock to supply new orders and took the decision to close the website rather than sell something we couldn’t deliver. We hope to have it back up soon tonight after a stock take now trading has finished.’

As I say, I’d recommend buying from a dealer. But to see what happens when buyers and sellers meet directly on the free market, also check out eBay.com.au

It’s hard to believe, but you’ll find silver on offer at up to A$42.55 / ounce (A$1386/kilo).

That is 89% above the silver spot price!

Put another way, silver bullion is selling on the free market for close to double the spot price that commodity exchange Comex would like you to believe silver is worth.

Sounds to me like the markets are speaking for themselves. Take a look at this screenshot if you don’t believe me.

Silver Trading on the Free Market at Close to Double the Silver Spot Price…

Silver  Trading on the Free Market at Close to Double the Silver Spot Price
Source: ebay.com.au

Here’s a confession. I have bought, and sold thousands of dollars of items successfully on eBay (nerd alert: my thing is for ancient Greek coins, and antique Australian cashier’s cheques) and have no problems with its integrity.

But all the same, if you want to buy silver bullion, with minimal patience you can buy at a much better rate than you’d find on eBay! Of course, then if you’re a seller (not that many informed owners of physical are) then this is the place for you.

Dr Alex Cowie
Editor, Diggers & Drillers

Ed Note: Buying physical gold and silver isn’t hard, but there are easier ways to bet on the gold and silver price. In today’s Money Morning Premium Notes, Kris reveals the eight simple ways Aussie investors can punt on metal prices without going through the hassle of storing, securing and insuring physical metal.

From the Port Phillip Publishing Library

Special Report: TORRENT SIGNAL 3

Daily Reckoning: Wasting the Mining Boom

Money Morning: Stand By for the Recession Rally in Resource Stocks: Take Two

Pursuit of Happiness: Booze, Watches and Fancy Pens — the Alternative Retirement Plan

More Reason to Like ‘Cottage Industrials’

By MoneyMorning.com.au

The whole so-called social fabric rest on privilege and power and is disordered and strained in every direction by the inequalities that necessarily result therefrom.

      – Benjamin R. Tucker, Instead of a Book

Yesterday, I put forward the idea that the age of giant corporations was over. Instead, I wrote, bet on the small guy. The cottage industrial is what I called the smaller, more flexible, flatter, owner-managed enterprise, as compared with the giants of industry.

Companies can get too big. There is such a thing as diseconomies of scale, which occurs when companies get less efficient after reaching a certain size.

A reader sent me a fascinating note on this idea from a New York Times Magazine article by Jonah Lehrer about the work of Geoffrey West. (‘A Physicist Solves the City’) Let’s take a deeper look…

Bloated Giants

West is a theoretical physicist turning his talents to the study of cities and corporations. There are a number of affinities between the two. There is also a big difference: Cities hardly ever die, while corporation routinely do.

As West notes,’ Lehrer writes, ‘Hurricane Katrina couldn’t wipe out New Orleans, and a nuclear bomb did not erase Hiroshima from the map. In contrast, where are Pan Am and Enron today? The modern corporation has an average life span of 40–50 years.

Why?

An excerpt explains:

After buying data on more than 23,000 publicly traded companies, Bettencourt and West discovered that corporate productivity, unlike urban productivity, was entirely sublinear. As the number of employees grows, the amount of profit per employee shrinks. West gets giddy when he shows me the linear regression charts. ‘Look at this bloody plot,’ he says. ‘It’s ridiculous how well the points line up.

The graph reflects the bleak reality of corporate growth, in which efficiencies of scale are almost always outweighed by the burdens of bureaucracy. ‘When a company starts out, it’s all about the new idea,’ West says. ‘And then, if the company gets lucky, the idea takes off. Everybody is happy and rich. But then management starts worrying about the bottom line, and so all these people are hired to keep track of the paper clips. This is the beginning of the end.

‘The danger, West says, is that the inevitable decline in profit per employee makes large companies increasingly vulnerable to market volatility. Since the company now has to support an expensive staff — overhead costs increase with size — even a minor disturbance can lead to significant losses. As West puts it, ‘Companies are killed by their need to keep on getting bigger.’

In a free market, such larger companies would run into all kinds of problems. Losses and lost market share would force them to shrink, or they would go out of business.

But we don’t live in a free market.

Instead, companies grow unnaturally large in a web of state privilege. It is easy to see this with banks. Is there any doubt that the too-big-too-fail banks would not be as big as they are without aid from the government? The banking industry is a cartel, underwritten by the Federal Reserve and the taxpayer. Without that super-structure, I think banks would be much smaller.

This phenomenon goes way beyond just banks. It covers nearly everything.

  • The giant military-industrial complex is impossible to imagine without government aid.
  • The sprawling retail businesses would be impossible if the taxpayer did not underwrite the massive costs to build roads, bridges and ports.
  • Huge pharmaceutical companies and tech giants like Intel or Microsoft are impossible without the state enforcing patents.

The fact is the state, through its policies, forces centralization and bigness. It’s even deeper than that and affects the social networks that evolve in a society (state-run schools, prisons, etc.).
 
This is an old story. (19th-century American libertarians picked up on it, especially after the Civil War. Railroad land grants were an obvious government handout to big business, for instance.) But even so, it is largely unappreciated, even by people who call themselves ‘libertarian’.

These are people whose knee-jerk reaction is to defend the Keystone Pipeline project, even though it tramples all over the rights of farmers and ranchers through the use of eminent domain.

Or people who jump to defend Wal-Mart’s laying waste to small American retailers on the grounds that it ‘better met the needs of its customers’, despite the fact that Wal-Mart has benefited tremendously from state privilege and subsidies. It’s no more a free-market institution than Fannie Mae.

Anyway, I digress. Even if the free-market angle were not true, West’s points still stand. And they back a lot of older research about corporate bureaucracy. I recall a witty line from economist Kenneth Boulding. I don’t know where I read it originally, but I found it on the Web:

[T]he larger and more authoritarian the organization, the better the chance that its top decision-makers will be operating in purely imaginary worlds. This perhaps is the most fundamental reason for supposing that there are ultimately diminishing returns to scale.

Which Businesses You Should Own 

This makes intuitive sense. The guys at the top of a hierarchy of any kind are likely to have a very different view than the guys at the bottom doing the work. This is another point in favour of those flatter cottage industrials.

The reader who pointed me to the New York Times Magazine piece also wrote:

I’m sure you are familiar with Clayton Christensen’s Innovator’s Dilemma. It doesn’t talk specifically about richer returns, but about how companies can get so large that they have to pursue profitable ventures that can pay for their cost structure: They cannot afford to pursue new opportunities that are less lucrative, at present. If you’ve not read the book, it is superb; even my artsy, Occupy-obsessed, left-wing students loved it.

This idea directly applies to our cottage industrial theme. It shows again the advantage of low-cost, entrepreneurial firms against the mastodons of the field.

To sum up on this theme: Stick with the smaller, entrepreneurial companies. They have a better shot at finding the seams of growth and opportunity in what is a stagnant and trouble-filled economic landscape. Ironically, as West points out, these firms are also better able to weather the inevitable storms.

The age of the giant corporation as a great investment is over. The age of the cottage industrials has arrived.

Chris Mayer
Contributing Writer, Money Morning

From the Archives…

Join Money Morning on Google+

Why Waste Your Time on Gold When You Can Invest in Dividend Stocks?
19-04-2013 – Kris Sayce

A Trader’s Eye View of Gold’s Frightening Collapse
18-04-2013 – Murray Dawes

Why You Should Buy ‘Dirty, Grimy’ Gold Stocks
17-04-2013 – Dr. Alex Cowie

Why this Historic Fall in the Gold Price Equates to a Historic Opportunity
16-04-2013 – Dr. Alex Cowie

Beware the ‘Safety Bubble’, But Don’t Sell Dividend Stocks Yet
15-04-2013 – Kris Sayce

GBPUSD is facing trend line support

GBPUSD is facing the support of the upward trend line on 4-hour chart, a clear break below the trend line support will suggest that the upward movement from 1.4831 had completed at 1.5411 already, then the following downward move could bring price to 1.4500 zone. On the upside, as long as the trend line support holds, the uptrend could be expected to resume, and one more rise towards 1.5600 is still possible. Resistance is at 1.5335, a break above this level could signal resumption of the uptrend.

gbpusd

Daily Forex Analysis

How Confirmation Bias Could Ruin You

By MoneyMorning.com.au

I enjoy using Twitter.

For those who aren’t aware, Twitter is a website that lets you broadcast your thoughts to the world in 140 characters. More importantly, it lets you follow other people who might be saying interesting things, or linking to interesting articles.

It’s great for keeping abreast of breaking news, and sending messages to other users.

But can it make you a better investor?

Can Twitter Make You Money?

The FT’s Gillian Tett recently took a look at the results of a new study from Massachusetts Institute of Technology. Academics Sandy Pentland and Yaniv Altusher looked at how social media (such as Twitter) affects investment performance.

The researchers looked at the ‘eToro’ trading platform. This allows traders not only to chat about markets, but also to watch each others’ trades, and even copy them, if they wish.

The upshot of the study was that the best investors were those who ‘received information from a wide range of social groups — and copied a range of gurus — performed 10% better than ‘normal’ traders.’ They also did better than ‘traders following one or two gurus.

In short: ‘maintaining diverse social ties — and swapping information with several different crowds — tends to raise returns.

So should even the most technophobic investor be rushing out to sign up to Twitter and Facebook?

Of course not. Investors should be very picky about the information they consume. If anything, most of us should be consuming less news and information. It’s all too easy to be tempted to over-trade when you’ve got headlines screaming at you from every direction.

The Real Lesson from Social Media

However, the study does highlight a key psychological threat that every investor should be aware of: ‘confirmation bias’.

Human beings like to feel in control of their environment. It’s a survival mechanism. We form theories and look for patterns so that we can navigate an uncertain world with some sense of confidence that we’re making the right decisions. If we didn’t have this instinct, we’d spend most of the day sitting on the sofa, paralysed by indecision.

The trouble is, it’s very easy to get wedded to the illusion of certainty. It takes a lot of effort to build a world view that we feel comfortable with. So we hate it when our way of looking at things is challenged. Particularly if incorporating the new information would mean having to change our minds about a view that has proved useful in the past.

The discomfort we feel when we can’t incorporate a piece of information into our existing world view is called ‘cognitive dissonance’. It’s an unpleasant sensation — like an itch you can’t scratch. So it’s something that we all try to avoid.

We stock up on arguments to defend our views, and attack the opposing view. And sometimes, if we can’t give a well-argued answer to a point, we’ll resort to distraction tactics or personal attacks.

You only have to look at how defensive people get when discussing politics or religion to see this in action. Ever wanted to chuck a brick through the telly when you’re watching Question Time? (Who hasn’t?). That’s cognitive dissonance for you.

In short, we’d rather be proved right than proved wrong. So we seek out information and views that confirm our own take on things, and ignore information that contradicts it. This is ‘confirmation bias’ in action. And the higher the stakes, the more prone we become to it.

This is a big problem for investors. Because when we invest, we are backing our opinions with money. So the stakes are high.

Two Ways to Deal with Confirmation Bias

What can you do about this? The first solution is to seek out views that oppose your own before you invest. A key part of disciplined investing is to write down your reason for investing in a stock or any other asset before you do so. That way, you have a record of your thought process, which can help a lot when it comes to deciding whether to sell, or add more to a position.

But another good exercise is to try to make the case for doing the opposite of what you’re doing. So if you plan to buy a stock, try to make the case for shorting it. Write down all the reasons why this stock is going to tank, and why anyone who shorts it will make a fortune.

If you end up being more convinced by the ‘short’ story than the ‘long’ case — then maybe you shouldn’t be investing in that particular stock.

That might sound like a lot of work. But really, thinking about it, it’s not a lot more effort than you’d put into buying a new car or even a new TV. Given the amount of money that you’re probably putting at stake, you should be thinking these decisions through before you make them.

But there’s a second part to this, which is to build a portfolio that doesn’t depend on any given world view being ‘correct’. This is the secret behind diversification: making sure you don’t have all your eggs in one basket.

In effect, you want to ‘future proof’ your portfolio so that regardless of what happens in the future, you have a better chance of riding disasters out with minimal losses.

John Stepek
Contributing Writer, Money Morning

Join Money Morning on Google+

Publisher’s Note: This article originally appeared in MoneyWeek

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Why Waste Your Time on Gold When You Can Invest in Dividend Stocks?
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Why this Historic Fall in the Gold Price Equates to a Historic Opportunity
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Beware the ‘Safety Bubble’, But Don’t Sell Dividend Stocks Yet
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Netflix Crushing it After Earnings ResultsNetflix Crushing it After Earnings Results

By WallStreetDaily.com

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Netflix (NFLX) is crushing it today!

The stock is up over 20% after the company reported better-than-expected results on Monday.

Earnings are up now that the company racked up two million new customers for its streaming video service in the United States. And it added another million from markets outside U.S. borders.

Shares are now trading for $218 – a far cry from its 52-week low of $52.

Article By WallStreetDaily.com

Original Article: Netflix Crushing it After Earnings ResultsNetflix Crushing it After Earnings Results