1. Perspective

    November 22, 2008 by Craig

    Summary

    Market graphs can tell very different stories depending on the particular timeframe.

    I’m a very visual person. Any time I need to analyze something, I make a picture, either physically or in my own head. I can’t do mental math without having a mental piece of paper with mental numbers written on it. A series of numbers is not very useful to me… but blot those numbers on graph and I can easily see the trends.

    Today I was listening to the Marketplace Podcast for my usual dose of business news. Of course, the talk was all about the recent financial mess. Since I was at my computer, I decided to check out the graphs for the S&P 500 (one of the best indicators for overall stock market performance in the U.S). I hadn’t kept up on them recently, so I thought it was a good time for some updated information.

    The numbers and graphs themselves didn’t really impress me; they mostly followed what I’d been listening to for the past few days/weeks/years. What prompted my blog post was how different the graphs looked depending on the timeframe.

    Follow along with me as I show you what I mean. A few notes first:

    • All charts are courtesy Yahoo Finance. Their old charts are still the best ones out there IMO. Since I couldn’t figure out a way to lock them to a specific date, I’ve copied these particular instances directly to my site (Yahoo, please don’t sue me).
    • For the latest charts, go to their S&P 500 page. There’s lots of graphing options there for your pleasure.
    • You can click each graph for the full-sized version.
    • All of these charts are on logarithmic y-axes. That means that they emphasize relative (percentage) gains, not absolute gains. This is important when understanding trends, especially over longer periods of time. Any amount of absolute change will mean different things depending on whether it’s applied to a large or small value.
    • I’ve also added some example analysis of what each picture could represent, absent of outside context.

    Past 1 Day

    First of all, here’s the 1-day view (for Friday, November 21, 2008):

    S&P 500 1d 2008-11-22

    Based on this picture, you could say that the market had a great day, although it started out pretty mundane. But things are looking up.

    Past 5 Days

    Here’s the view of the past week.

    S&P 500 5d 2008-11-22

    This picture shows a down period. The last half of the week was definitely rocky, but there’s nothing earthshattering here. It looks like there’s a recovery started.

    Past 3 Months

    Moving right along, here’s the past quarter-year:

    S&P 500 3m 2008-11-22

    There’s a clear downward trend. It’s a fairly straight line. There’s a few significant dips, but they’re followed by recoveries that bring it back to the main trend line. This is troubling.

    Past Year


    S&P 500 1y 2008-11-22

    Wow, check out that big drop after a mild decline. Things must be going to hell.

    Past 5 Years


    S&P 500 5y 2008-11-22

    OMG, we’re in an nosedive! Something is seriously broken to take a drastic turn like that. EVERYBODY PANIC!

    Max

    This is the full history of the S&P 500 since its inception 50 years ago. Unfortunately Yahoo has no finer granularity between 5 years and max.

    S&P 500 max 2008-11-22

    The trend here is clear: the stock market has been climbing at a pretty steady rate since the formation of the index. I have some additional notes:

    • Regardless of the long-term trend, there’s lots of bumps along the way.
    • I eyeballed the slope of the line between the start of the graph and 1995, and then extended that line to the current day. My imaginary line happened to match the current value of the S&P 500. With this analysis, you could consider the current crash to be a big correction from the much-higher-than-average growth that we’ve had since 1995 (especially before 2000).
    • The biggest dip (2001-2003) is the one that follows the longest period of smoothness (1991-2000).
    • The downward periods tend to be shorter and steeper than the upward periods. Each bump leands towards the right.
    • The current downturn looks a lot like the triple-whammy we had in early part of the decade caused by the dotcom crash, 9/11, and the Enron/corporate accounting scandals.
    • There’s other downturns too. Check out 1973-1975; the drop there it has a similar profile and depth to the one we’re in now. Note the hard floor around year-end. The recovery is interesting too: there’s a clear trend up, but it takes the rest of the decade to best the previous high.
    • You may remember the huge crash of 1987 (I was 10 at the time; it was one of my first exposures to the financial world). Note the sharp spike; the steep slopes on both sides of the peak makes the event stand out like a thumbtack. Note that the market continued its climb afterward.

    I don’t want to make too much of these graphs or my analyses. I think these are more “interesting” than “predictive”. But I do think that it’s good to see the difference perspective makes.


  2. Bankroll Reversal

    October 10, 2008 by Craig

    How’s this for irony? As the U.S. banks become more nationalized
    banks in Canada are now becoming more independent.

    Also: Canada now has greater economic freedom than the U.S., although both are declining.

    Crazy times.


  3. This Time It’s Different

    October 7, 2008 by Craig

    Summary

    The current market turmoil has lots of people believing the economic sky is falling. However, downturns have happened repeatedly in the past, and the markets have recovered.

    You’ve probably heard about the financial, stock, and housing market upheaval in the United States. You may also know that similar events are happening in Europe, and that Canada is having its own issues. You may have heard talk about “Depression” (hearkening back to the Great one). Some have been calling the economy “broken“, and that the U.S. is due for a protracted economic downturn. There’s lots of panic to go around. Even though there have been downturns and recoveries in the past, we hear “This Time It’s Different”: that the circumstances we’re in today are “unprecedented”, and that this uncertainty will lead to major strife.

    When considering this, it’s very important to understand that humans do a very poor job of estimating risk. When thinking subjectively, we overestimate the probabilities of some risks and underestimate others. The invention of for-profit mass media has probably made this behavior worse:

    1. News sources make their money by attracting viewers.
    2. Viewers are attracted to bad and/or impressive-sounding news.
    3. To maximize viewership, news sources tend to emphasize (and possibly exaggerate) the frequency and impact of the stories they report.
    4. People view this and gain beliefs that don’t reflect reality.

    With that in mind, I’d like to offer this presentation on how the current downturn measures up to previous ones. I think it’s very illustrative of what’s happening now and in the past. The premise is stated early on:

    I don’t want to dismiss the anxiety some investors may be feeling, but just looking at the numbers, there is nothing remarkable about the severity or duration of this particular bear market.

    The presenter (Weston Wellington) then follows with some statistics regarding the depth and duration of previous slowdowns and their corresponding recoveries. The remainder of the presentation is historical news articles and magazine covers that predicted doom yet turned out to be false.

    We don’t know with any certainty what the future will bring; anyone who claims otherwise is misleading you. It’s possible that we’re still at the leading edge of a major long-term economic valley. However, there’s little evidence to suggest that that’s the case, and quite a bit to indicate that we’ll be past it sooner rather than later. “Unprecedented” is a word used more often than it should be, and even then it does not mean “unsolvable.” It’s very important to separate the facts from the rhetoric, and then act on the former while ignoring the latter.


  4. Lies, Dammed Lies, and People

    August 20, 2008 by Craig

    Summary

    Facts don’t lie, but people will take facts and use them to serve their agendas. Relying on just the conclusions is dangerous; analyzing the facts and reasoning behind the conclusions will provide better results.

    During our recent blargument Marco wrote:

    Facts say what the speaker wants them to (like statistics).

    I responded:

    This is an abuse of the word “fact” (and “statistic”). I know that your idea of what’s “fact” and mine do not necessarily like up exactly, but there’s no sense in trying to make “fact” mean “objective” and instead make it “subjective”.

    We already have a word for that: “opinion”.

    I might like to *say* that my opinions are facts, but that doesn’t make it any more true than if I say my car is a Ferrari. It may or may not be, but it would be silly to take my word for it without some sort of evidence (a peek in my garage, my vehicle registration, or perhaps a look at my bank account).

    Persuasive arguments are not always false or misleading, but I am at a disadvantage if I take persuader’s word for it that his statements are true (ie: are facts). I need to take other information into account. Part of that may be experience (how accurate has he been in the past, is he drawing reasonable conclusions based on the evidence he’s presented), but outside evidence and/or well-reasoned counterarguments are even more reliable.

    (I’ve added the emphasis in my reposting here.)

    A week ago the U.S. Government Accountability Office published a study about corporations (both US-based and foreign-controlled) and the taxes they pay. It was factual, apparently objective, and probably accurate (I don’t know how well the GAO does their job, but for the purposes of this argument I’ll assume it’s correct). It specifically did not draw any conclusions from the facts that it presented.

    The news media took the report and wrote hundreds of stories on it. Many (most?) of them had the theme “Corporations use tax loopholes to pay less than their ‘fair share'”., lead by the Associated Press who claimed that two-thirds paid no federal income taxes between 1998 and 2005. Even my favorite business news source, APM Marketplace, did a bit about big evil pampered corporations, leading off the story by saying that if real people were dodging their taxes on this scale, there would be public outrage.

    The very first thing I thought of when I read the first of these GAO news stories was “were the corporations that aren’t paying taxes also not earning income?

    In the U.S. (and in Canada, and probably most other developed nations), corporations pay “income” taxes on their profits, not their sales. This makes sense to most people when you explain it to them. “Sales” refers to the amount of money a business takes in. Subtract “costs” (what they pay out) from that, and the leftovers are what they keep: “profit”. Taxing based on sales (which would ignore costs and profitability) isn’t very effective, because it would hurt a an already struggling company with high sales and low or negative profitability (think GM) yet give a company with small sales and great profitability. There are such things as taxes on certain assets (which would effect business which own those assets, which may tend to be larger), but that’s not what the study was about.

    Most people think of corporations as big entities with thousands of employees, woldwide reach, and millions (or billions) in sales — and thus want them to pay millions of dollars in taxes. The truth is that most corporations are small and local; many have only one employee. Many are short-lived too (many don’t survive beyond five years, although the actual numbers vary depending on the study). A lot of them don’t have profits in every year. The laws allow a business who has a loss in one year to apply it against their profits in another year for the purposes of taxes (allowing that business to “catch up” from a business slowdown). Some (similar to my own business, although I’m not incorporated) pay out all of their post-expense sales money to their employee(s) (who then pay personal income taxes on it), and thus show no profit and pay no corporate tax.

    As it turns out, what I wrote above is probably a better explanation for the results than “corporate tax-dodging loopholes”. The GAO report itself wrote, in the very first paragraph of the summary:

    Most large [foreign-controlled] and [US controlled corporations] that reported no tax liability in 2005 also reported that they had no current-year income. A smaller proportion of these corporations had losses from prior years and tax credits that eliminated any tax liability.

    However, that’s not the story you got from most of the news articles.

    A few sources did try to offer counterarguments to the popular story. Fark summed it up nicely:

    Do corporations really pay no taxes? Or is it just a bunch of overhyped media BS on a slow news day? The real numbers indicate the latter

    This is yet another example of why counterarguments are necessary in most (if not all) discussions. Facts don’t speak for themselves (in fact, they don’t speak at all; they don’t have mouths), but everyone with an opinion or an agenda will be quick to offer theirs as the “correct interpretation” of the facts.

    It’s too much to ask for an unbiased interpretation of the facts from any one source (as evidenced by the countless examples of biased interpretations) so your best bet is to get multiple interpretations, analyze the reasoning behind their conclusions, and determine the best conclusion based on the strength of the arguments.

    Note that this doesn’t necessarily mean picking the best argument out of the group of all arguments. Each argument should have some aspect of the truth in it (if it’s completely faulty then you can discard it). Conclusions will usually only be true if their assumptions are correct, and often decision making comes down to picking from the most probable (but not necessarily correct) assumptions. If it comes down to a choice between one good argument with bad assumptions and one bad argument with good assumptions, you might get the best results by combining the two.


  5. New Perspective

    May 21, 2008 by Craig

    Alternate headline: “New Spirit of Chinese-American Cooperation comes to Cuba”


  6. Everyday Freedom

    April 25, 2008 by Craig

    Quick, in which country do you have greater freedom: China or the United States?

    The answer is definitely the U.S., where the laws ensuring freedom have been on the books for over two hundred years. Freedom is at the core of the American legal and political system.

    However, take away all the laws written on paper for the moment. How free are you in real, every day situations?

    Elliotte Rusty Harold just got back from China, and he says that he felt freer on the streets of Beijing:

    Entering China, I was prepared to be polite to cops, show my passport as necessary, and explain as best I could just why I was walking around sewage treatment plants with camera and binoculars. To my surprise I never had to. The simple fact is that I could walk absolutely anywhere I felt like in Beijing without being hassled by anyone. … There were surveillance cameras, but fewer than in the U.S. or London. Getting on the subway, no one wanted to look inside my bags. All transactions were cash.

    I saw fewer traffic stops, arrests, and police actions against other citizens than I do in a typical week in the states. In fact, I think I saw a grand total of two, both related to car accidents; and neither looked very serious.

    Somehow I thought a one-party, authoritarian state would be more oppressive than this. At least in the capital, Beijing compares favorably to major U.S. cities. To be honest, that doesn’t speak well for the U.S. If we can’t be less of a police state than a one-party, nominally Communist nation like China, then something has gone seriously wrong.

    Disclaimer: the plural of anecdote is not data — and this is only a singular anecdote. But I thought it was interesting and postworthy nonetheless.

    What important here is that actions speak louder than words. I think that it’s very important to have freedom built into the laws (one thing that the U.S. does better than Canada). However, those laws are only written on goddamn pieces of paper, and if they’re not enforced / respected, then they’re meaningless.


  7. Looniebucks

    July 6, 2007 by Craig

    It figures: now that I’m living in Canada and earning US dollars, the exchange rate between the two hits its worst level in my lifetime.

    Still, I’m not complaining too loudly: I did pay off my student loans while the exchange rate was near the historically best levels (circa 1999). Complaining that the exchange rate is poor is like complaining about the weather: you can’t do much about it, unless you’re willing to move… and it’ll probably change by the end of the week anyway.


  8. Immigration as a Competitive Advantage

    July 5, 2007 by Craig

    Microsoft is going to set up shop in Vancouver. One of the reasons for doing so is the more favorable immigration policy in Canada:

    The Vancouver area is a global gateway with a diverse population, is close to Microsoft�s corporate offices in Redmond and allows the company to recruit and retain highly skilled people affected by immigration issues in the U.S.

    This is a good thing for Vancouver and Canada, a big win for those who favor relaxed immigration policies (such as myself), and a big slap in the face for those in favor of tighter immigration controls — both for economic and homeland-security reasons.

    There are smart & talented people all over the world. Those people may not be able to do the work they want to do in their home countries for a variety of economic and political reasons. Many of those people aren’t allowed to work in the U.S. due to the American love-hate relationship with immigration; this practice will allow them to work in a similar (better?) environment. While they do that, they’ll draw a salary (which is largely made up of U.S. money) and spend most of that within Canada (on taxes and domestic purchases).

    Microsoft is showing that it’s not just trying to lobby for an H1B cap increase (as many have claimed): they’re serious enough about a real problem to take some actions outside the realm of the U.S. Government. The message to the American closed-border crowd is very clear: current policy is detrimental to business, and if it’s not corrected the U.S.A. will be loose out in the long run.


  9. Happy Canniversary

    June 25, 2007 by Craig

    As of yesterday I’ve been back living in Canada for one year. Over all it’s really good to be back.

    The most notable improvements, in my experience, are:

    1. The friendliness and competency of the average stranger (the people you meet on the street, on the road, at the check-out, and at the customer service call center).
    2. The general positive attitude of the people.
    3. The lack of social/cultural/political division and conflict.
    4. Affinity for nature, expressed through outdoor activity and concern for the environment.
    5. The number of days with pleasant weather.
    6. Not having to jump through hoops to appease the immigration police.
    7. The unopressiveness of the health care system. We’re getting better care thusfar without the high premiums and threat of bankruptcy-inducing medical bills.

    The most notable declines:

    1. The lack of access to good online retailers.
    2. Worse restaurants overall.
    3. Fewer options for air travel.

    I’ll note that a lot of this is regional (Calgary vs. Ft. Lauderdale) rather than national (Canada vs. USA), but a lot of it does apply elsewhere in both cases.

    We’re both very happy to be here. 🙂


  10. Speaking of Canadians and Americans…

    February 1, 2007 by Craig

    Laura and I are watching To Serve and Protect, the Canadian version of COPS. When compared against its southern counterpart, it’s comically dull. There’s no wrestling, tasering, or footchases. It’s basically just cops (in mustaches) picking up drunks and pot smokers. And everyone (the busted and the busters) is polite with each other. 😛