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If you’re like me, you’ve got a hundred other things to read this holiday week. That’s part of the reason why I enjoy this time of year so much – I finally get an opportunity to catch up on all the great stuff I missed earlier in the year.
One of the books I’ve been really enjoying this month is Daniel Kahneman’s Thinking Fast and Slow. Daniel Kahneman was one of the pioneers of behavioral economics and is still one of the titans of thought leadership in this exciting new field. I distinctly remember the thrill of discovering his early work with Amos Tversky shortly after I graduated from UCLA.
I’m not sure what it’s like back at my ol’ alma mater these days, but the economics education I received from UCLA would best be described as “classical.” It was all straight from Samuelson and Friedman, with bits of international economics on the side and the pragmatic stuff like cost accounting. I don’t even think there was a course on basic game theory back then. So I turned to figures like Kahneman and Richard Thaler to round out my education and help me reconcile the whole bit about all of classical economic theory hinging on the assumption that individuals act rationally, an assumption that every economist knows is incorrect. I remember devouring Quasi-Rational Economics on the beach in Florida while my family looked on aghast.
Anyway, Thinking Fast and Slow distills a lot of Kahneman’s most interesting research on cognitive bias and presents it in a tidy, highly-accessible package. It’s less a book about economics than it is one about how the brain works and why it does some of the strange things it does. Check it out if you’re still unsure what to buy with that Amazon Gift Card.
I’ve also been reading The Casual Vacancy, J.K. Rowling’s first novel outside the Harry Potter universe. I’m a huge fan of the Harry Potter books, and so I take mild intellectual offense a this one being described as “her first book for adults.” But marketing strategy is marketing strategy, and someone more intelligent than I decided that was the proper way to describe it. That said, it does share a few qualities with the Harry Potter books: it reads easy, it’s difficult to put down, and her characterization of teenagers is perhaps the most honest and accurate of any mainstream author I’ve encountered.
In a lot of ways, The Casual Vacancy feels like a catharsis. Packed to the brim with myriad forms of sex and profanity, I get the sense that everything she’s been yearning to write about for all these years but couldn’t all erupted at once. And for someone whose spent her entire career writing books “for kids,” she has a surprising aptitude for this stuff.
What I find most interesting about it is that it’s a sign of the times, exactly the kind of cultural mile-marker I always keep one eye open for. J.K. Rowling is a person who could have written any book she wanted about any imaginable topic and a legion of fans and critics would have eaten it up. And she chose to write about political hypocrisy and dysfunction. Surely a sign of the times, perhaps an indicator of the “peak partisanship” I wrote about a couple weeks ago? While it is a political novel, don’t worry, it’s not the preachy sermon you’re afraid of. Instead, it’s full of balance, honesty, and humanity. It’s the most purely entertaining political novel I’ve read since Primary Colors.
Anyway, The Casual Vacancy is a big, ambitious book. You can tell it’s been on her mind for a while. And it’s a success, too. I have tremendous respect for artists who can do different things, who are skilled using different mediums and have the ability to surprise, impress, and evolve. The only warning I’d issue is that she and George R. R. Martin must have some kind of bet in place about who can introduce and juggle the most characters and plot lines. It takes a good hundred pages or so to get comfortable with the setting and, unlike Harry Potter, she takes her time building towards a full head of steam.
It made me think and it made me feel, and that’s why I like to read books.
The market went on a bit of a roller coaster ride this last week! Usually it’s fairly quiet this time of year.
The headlines all say that it’s concern over the fiscal cliff. But ask yourself: is that really the case? What has really changed from the middle of month when the market was rallying?
It’s a skittish market, considerably more so than it was during the summer. The problem that exists in a world where the Fed is forcing you to take risk is that people wind up taking risk they don’t really want to take. That makes them skittish and afraid, ready to jump ship at the first whiff of danger. It reminds me of teaching Mrs. Concord to ski many winters ago . I was impressed with her progress and so I strong-armed her into trying out a black diamond (but one of the easier blacks on the mountain, “Lower Lakeview” for you Mt. Rose locals).
Like Ben Bernanke, I plunged down ahead of her, effectively taking away her choice in the matter. She followed, but it was a risk she wasn’t truly comfortable taking. All the confidence she exhibited on the blue runs disappeared, and at the first sign of instability she simply dropped to the ground and slid halfway down the mountain. There were tears, angry words, and then more tears.
We joke about now, but back in the moment I felt awful. I wonder what will happen in the next bear market, when all of the investors who aren’t really comfortable taking risk but are in there because they have to make money wind up with unexpected losses. What will these people do? Will they cry? Will they feel betrayed? I wonder if Mr. Bernanke will feel bad the way that I did. Will the policy masterminds who have determined that forcing investors to take risk is the best policy prescription feel remorse? I can’t imagine it’s something they permit themselves to think much about.
Anyway, as an investor with a near- or medium-term mindset, I’m a lot less concerned about what they’re doing in Washington D.C. than the weak technicals the S&P is exhibiting. Check it out, this is kinda sad:
That’s four times the market has tried to make a new high and four times it has failed. Momentum has been slowing, too, with each effort a little less heartfelt than the last. The market bullishness I was feeling on last New Year’s Eve has almost completely faded.
Perhaps some sort of policy clarity will kindle some investor enthusiasm. Who knows. Personally, I can’t tell if there’s more or less uncertainty today than there was a couple of weeks ago. But if the market doesn’t rocket higher on some details about new policy trajectory, I’d be highly surprised if it didn’t try and retest 1350 in the coming weeks or months. Depending on your longer-term views on the market, that could represent a good buying opportunity.
That’s enough for this holiday-shortened week. Have a happy and safe New Year’s, and check back in the coming weeks for our look ahead at 2013!