Sleeplessness Causes Us To Make Poor Investments
by ilene - March 10th, 2011 3:23 pm
This is fascinating, and the conclusions from this research are bad news for those of us who have trouble sleeping. – Ilene
Courtesy of Washington’s Blog
Scientific American noted yesterday that a lack of sleep makes us take riskier gambles:
A team of Duke University researchers examined the brains of 29 healthy volunteers using functional MRI, which tracks changes in blood flow in the brain, while the subjects performed a variety of gambling tasks.
After a full night of sleep, participants behaved like most people tend to in the real world: guarding against financial loses and cautiously pursuing gains.
But when deprived of a night’s sleep (kept awake in the lab from 6 p.m. until 6 a.m.), the volunteers "moved from defending against losses to seeking increased gains," the researchers reported. This shift "suggests an unfounded rise in expectation for gain," a condition the team describes as "an optimism bias."
***
Upon examining the fMRIs, the researchers noticed that when making financial decisions in the gambling games, sleep-deprived individuals had greater activation in the ventromedial prefrontal cortex, an area of the brain associated with fear, risk and decision-making, compared with when they were well rested. The sleep-deprived group also showed a drop in activity in the anterior insula, a region implicated in emotion and addiction, relative to when they had slept.
These changes might be linked to the excess dopamine the sleep-deprived brain tends to fire off in an effort to help keep alert. This neurotransmitter, which is linked to pleasure and reward, might be at least partly to blame for sleep-deprived subjects’ increasing sense that they have better odds of winning big—and their lessening fear of losing.
***
These effects could also extend to areas where the stakes are even higher, such as the trading floor or the hospital, where workers often perform their duties when they are less than well rested. "I think it’s critical that society as a whole grapple with the data generated about the detrimental effects of sleep deprivation," Michael Chee, a professor at Duke’s Neurobehavioral Disorders Program in Singapore and a co-author of the new study, said in the statement.
Interestingly, caffeine doesn’t help. As Scientific American notes:
Because these effects seem to run deeper than just apparent torpor, a shot of espresso—or even stronger stimulants—might not short-circuit the sleep-deprived brain’s tendency toward unwarranted optimism, Venkatraman added. "Countermeasures that combat
…
Facebook
Twitter
LinkedIn 
del.icio.us
DiggThe Coming Rout
by ilene - March 8th, 2011 4:15 pm
Courtesy of Chris Martenson
There’s a scenario that could play out between May and September in which commodities (including my beloved silver) and the stock and bond markets could all sell off between 20% and 40%. The trigger will be the cessation of QE II and a multi-month pause before QE III.
This is a reversal in my thinking from the outright inflationary ‘buy with both hands’ bent that I have held for the past two years. Even though it’s quite a speculative analysis at this early stage, it is a possibility that we must consider.
Important note: This is a short-term scenario that stems from my trading days, so if you are a long-term holder of a core position in gold and silver, as am I, nothing has changed in my extended outlook for these metals. The fiscal and monetary path we are on has a very high likelihood of failure over the coming decade, and I see nothing that shakes that view.
But over the next 3-6 months, I have a few specific concerns.
It’s time to build on the idea I planted in the Insider article entitled Blame the Victim (February 28, 2011) where I speculated on the idea that the Fed might be forced to end its quantitative easing programs, almost certainly because of behind-the-scenes pressure.
Here’s what I said:
How I read [the Fed's recent propaganda tour] is that the Fed is taking some heat for its inflationary policies, mainly behind closed doors, and it is trying to do what it can — with words — to soothe the situation. Perhaps China is making noises, or perhaps Brazil’s finance minister is making the phone lines feeding the Eccles building smoke ominously, or perhaps it is internal pressure coming from politicians with restless voters. Or all three.
The big risk here is that the Fed will be forced by this rising pressure to discontinue the QE program in June at the normal ending of the QE II efforts. Couple that with a possible federal showdown over the debt ceiling right at the same time, and you have the makings for a massive fireworks display, possibly involving derivative mortars bursting in air.
At the time, I speculated that all of the Fed’s pronouncements about inflation being almost nonexistent were actually signs that the Fed was taking some behind-the-scenes heat for the inflation its policies was creating. …
Consumer Metrics Institute: In Advance of Friday’s Retail Sales
by Chart School - March 7th, 2011 3:35 pm
Courtesy of Doug Short
With the February Advance Retail Sales report coming out on Friday, I realized that a few weeks have passed since I’ve updated the analysis of personal consumption from the Consumer Metrics Institute (CMI). I’ll start with an overlay since 2010 of the CMI Weighted Composite and Growth Indexes.
Background
For those unfamiliar with these data series, here is a link to the Institute’s website. Their page of frequently asked questions is an excellent introduction to the service. See also the Institute’s February 7 commentary, Measuring the Impact of "Strategic Defaults" and Mortgage Delinquencies on Consumer Spending.
The charts below focus on the ‘Trailing Quarter’ Growth Index, which is computed as a 91-day moving average for the year-over-year growth/contraction of the Weighted Composite Index, an index that tracks near real-time consumer behavior in a wide range of consumption categories. The Growth Index is a calculated metric that smooths the volatility and gives a better sense of expansions and contractions in consumption.
The 91-day period is useful for comparison with key quarterly metrics such as GDP. Since the consumer accounts for over two-thirds of the US economy, one would expect that a well-crafted index of consumer behavior would serve as a leading indicator. As the chart suggests, during the five-year history of the index, it has generally lived up to that expectation. Actually, the chart understates the degree to which the Growth Index leads GDP. Why? Because the advance estimates for GDP are released a month after the end of the quarter in question, so the Growth Index lead time has been substantial.
Has the Growth Index also served as a leading indicator of the stock market? The next chart is an overlay of the index and the S&P 500. The Growth Index clearly peaked before the market in 2007 and bottomed in late August of 2008, over six months before the market low in March 2009.
…
Stock World Weekly
by SWW - March 6th, 2011 8:22 am
NEW: Elliott and Ilene are available to chat with Members regarding topics presented in SWW, comments are found below each post.
Here’s the newest Stock World Weekly: Illusion Based on a Fantasy
Comments welcome… share your thoughts.
Stock World Weekly archives here >
Are Booming Economies Good for the Markets?
by ilene - March 5th, 2011 6:45 pm
Courtesy of John Mauldin at Investors Insights
People only accept change in necessity and see necessity only in crisis.
— Jean Monnet
The economy is doing better, and we will survey some of the highlights. But does this mean the stock market is headed higher? A chart from Louis Gave got me to thinking, and I shot off a few thoughts and questions to Ed Easterling and Vitaliy Katsenelson. What ensued was a lively “battle” of charts and thoughts and more questions, so this week I let you look over my shoulder at our conversation. This letter will print longer than normal, as there are a lot of charts. I think you will find it very thought-provoking, if only a little cautionary. And we start with a look at a survey about what Americans think of the current fiscal deficit and the ways to remedy it.
At the end of the letter I give you a link to a speech by my friend Pat Cox, which is one of the best speeches and PowerPoints I have seen in a long time. It will only remain up for another ten days, per agreement with his publisher, so you really do want to find some time to listen. And I remind you about my conference in La Jolla April 28-30, with its gonzo all-star lineup, which I modestly think makes it the best investment conference anywhere. It is rapidly filling up. Don’t procrastinate. And I have some TV and radio times for next week as well. Now, let’s jump in to today’s letter.
The Delusion of Crowds and the Endgame
My good friend Dennis Gartman pointed me to a recent survey of “likely voters” done by the Tarrance Group. The results were disturbing to me, and show how truly ill-informed the American electorate is. This does not bode well. You can see the survey at http://www.politico.com/
“There are widespread misperceptions about the state of the federal budget. A majority of voters incorrectly believes the federal government spends more on defense/foreign aid than it does on Medicare and Social Security (63%). Also, a similar majority (60%) incorrectly believes problems with the federal budget can be fixed by just eliminating waste, fraud and abuse. Voters do not casually agree with these untruths…
Current Market Snapshot
by Chart School - March 2nd, 2011 4:35 pm
Courtesy of Doug Short
The S&P 500 closed the day up 0.16%. The index is 93.4% above the March 9 2009 closing low, which puts it 16.4% below the nominal all-time high of October 2007.
For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.
For a bit of international flavor, here’s a chart series that includes an overlay of the S&P 500, the Dow Crash of 1929 and Great Depression, and the so-called L-shaped "recovery" of the Nikkei 225. I update these weekly.
These charts are not intended as a forecast but rather as a way to study the current market in relation to historic market cycles.
The Oxen Group’s Longterm Ratings virtual Portfolio – February Recap
by David Ristau - March 2nd, 2011 11:13 am
At the end of December, The Oxen Group launched our Longterm Ratings virtual Portfolio that revolves around our Longterm Ratings and financial analysis of companies on five-year projections. In today’s update on our Longterm Ratings virtual Portfolio and Longterm Ratings, we will be covering our performance so far, our changes in guidance and price targets in February, our current holdings, and some attractive positions that we believe look good in March and 2011.
Performance
Since our Longterm Ratings virtual Portfolio’s inception at the end of December, in two months, we have increased the virtual portfolio 7%. At the end of February, we had recommended holdings in fifteen companies and had exited parts of five holdings and another full position. Our realized exits were half of our position in Big Lots (BIG) for nearly 26%, 1/3 of our position in Dean Foods (DF) at 17.19%, 1/3 of our position in First Solar (FSLR) a 24%, our full position in a Short Sale in Green Mountain Coffee Roasters (GMCR) at -32%, 2/3 of our position in SunPower (SPWRA) for nearly 21%, and 1/3 of our position in Trina Solar (TSL) for nearly 21%.
Holdings we recommended in February to our members:
- General Motors (GM) – We have a Price Target at $52 for the company and believe that GM is a great value right now. The company has a lot of undervaluation currently as they have a lot of sales potential moving forward and have not priced in many gains moving forward. We believe with only 3-4% growth in operating income moving forward the company has significant upside. Oil prices rising does hurt margins, but the company has moved into some important smaller markets. They have gotten very positive reviews on automobiles, and that appears to be translating into a rise in sales.
- Changyou (CYOU) – The company, a Chinese online internet video game producer, looks to have a lot of upside moving forward after its 2010 IPO. The company has the most popular online video game in China, and they are introducing a new line of games in 2011 that should continue to help the company grow its market share. Additionally, the company should benefit from the growing Chinese internet market that should quadruple in the next five years as internet comes to more areas in China. We have…
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(
