The Big Picture

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• By the numbers: The Demise of PCs
• How to Win at Forecasting
• Science Of Persuasion
• How important is the fiscal cliff for investors? Hint: Not very
• Student and auto loans still driving consumer credit gains
• Weekly Eurozone Watch (12/7/12)
• First Look: BMW 4 Series Coupe Concept
• US in Recession Since July?
• 10 Weekend Reads
• California Youth Crime Plunges to All-Time Low

By the numbers: The Demise of PCs Posted: 08 Dec 2012 01:00 PM PST From Barron’s a few weeks ago:     ~~~ Source: Barron’s

How to Win at Forecasting Posted: 08 Dec 2012 11:30 AM PST Fascinating discussion over at Edge about the nature of expert judgment and what it means. (It careens into a little HedgeHog and Fox arguments).  This has an enormous relevancy for investors. Here’s the intro, plus a link to the video. How to Win at Forecasting There’s a question that I’ve been asking myself for nearly three decades now and trying to get a research handle on, and that is why is the quality of public debate so low and why is it that the quality often seems to deteriorate the more important the stakes get? About 30 years ago I started my work on expert political judgment. It was the height of the Cold War. There was a ferocious debate about how to deal with the Soviet Union. There was a liberal view; there was a conservative view. Each position led to certain predictions about how the Soviets would be likely to react to various policy initiatives. One thing that became very clear, especially after Gorbachev came to power and confounded the predictions of both liberals and conservatives, was that even though nobody predicted the direction that Gorbachev was taking the Soviet Union, virtually everybody after the fact had a compelling explanation for it. We seemed to be working in what one psychologist called an “outcome irrelevant learning situation.” People drew whatever lessons they wanted from history. There is quite a bit of skepticism about political punditry, but there’s also a huge appetite for it. I was struck 30 years ago and I’m struck now by how little interest there is in holding political pundits who wield great influence accountable for predictions they make on important matters of public policy. Click to view video Source: Edge   Click to read full article     ~~~ Philip E. Tetlock is Annenberg University Professor at the University of Pennsylvania (School of Arts and Sciences and Wharton School). He is author of Expert Political Judgment: How Good Is It? How Can We Know? Which describes a twenty-year study in which 284 experts in many fields, including government officials, professors, and journalists and ranging from Marxists to free-marketeers, were asked to make 28,000 predictions about the future. He found they were  only slightly more accurate than chance, and worse than simple extrapolation algorithms. The book has received many awards, including the 2006 Woodrow Wilson Award from the American Political Science Association and  the 2008 Grawemeyer Award for Ideas Improving World Order.

Science Of Persuasion Posted: 08 Dec 2012 08:08 AM PST Animation describing the Universal Principles of Persuasion based on the research of Dr. Robert Cialdini, Professor Emeritus of Psychology and Marketing, Arizona State University. Dr. Robert Cialdini & Steve Martin are co-authors (together with Dr. Noah Goldstein) of the New York Times, Wall Street Journal and Business Week International Bestseller Yes! 50 Scientifically Proven Ways to be Persuasive. Nov 26, 2012

How important is the fiscal cliff for investors? Hint: Not very Posted: 08 Dec 2012 07:30 AM PST How important is the fiscal cliff for investors? Hint: Not very Barry Ritholtz Washington Post,  December 1 2012     The "fiscal cliff" paranoia continues unabated. Apparently, it is the only thing that matters to the markets. Every twist and turn in the negotiations is crucial to the future of the republic! Whenever the media obsess over a potential crisis, history teaches us that it is most likely to be overwrought hype. Recall the Y2k frenzy as Exhibit 1 in The People v. Really Bad Media prosecution. Want to learn just how absurdly obsessive the media have become over this? Just type "fiscal cliff" into Google Trends and you will see how, post-election, the term's appearance in the media simply went ballistic. Where did this sudden spike in mentions begin? The Columbia Journalism Review points to coverage such as that of the financial network CNBC. Ryan Chittum, who reports on the business media for CJR, notes that CNBC began a campaign called Rise Above that blanketed its airwaves since the day after the election with pleas for a solution to the fiscal cliff. As Google's trend chart shows, it was part of a media dogpile — at least until the David Petraeus affair sent the drones scurrying after a more salacious story. What does the fiscal cliff mean to investors? Let's start with a definition: The term refers to the deal that Congress made in late 2011 to temporarily resolve the debt ceiling debate. The "sequestration," as it is known, calls for three elements: tax increases, spending cuts and an increase to the payroll tax (FICA). The Washington Post's Wonkblog has run the numbers and finds "$180 billion from income tax hikes, $120 billion in revenue from the payroll tax, $110 billion from the sequester's automatic spending cuts and $160 billion from expiring tax breaks and other programs." That is a not-insignificant amount of money, but it is hardly the end of the world. To put this into context, it is a little less than the TARP bailout for Wall Street in 2009 and somewhat less than the American Recovery and Reinvestment Act, President Obama's stimulus package. An educated guess puts this at about $600 billion to $700 billion out of a $15 trillion U.S. economy. I'd ballpark that at about 4 percent of the GDP, or 0.50 percent of the forecasted GDP growth of 2 percent for calendar year 2013. The term "fiscal cliff," popularized by Fed Chairman Ben Bernanke, is really a misnomer. As several analysts have correctly observed, the effects of sequestration are not a Jan. 1, 2013, event. The impact of the spending cuts and tax hikes would be phased in over time. A fiscal slope is more accurate. Additionally, as students of history have learned, single-variable analysis for complex financial issues is invariably wrong. Because of the inherent complexity of economies and markets, we cannot adequately explain or predict their behavior by merely looking at just one variable. Given all this, what else might be driving equity markets? Consider the following factors as the causes of recent volatility: Weak corporate profits: If you want to understand market jitters, look no further than falling earnings growth. Profits and revenue have disappointed in the third quarter, coming in below estimates. As the Wall Street Journal noted, this has been the "worst quarter for corporate profits in three years." Even worse, future estimates for earnings growth keep sliding. In July, estimates for fourth-quarter profit were annualized gains of 14 percent. By October, that fell to 9.6 percent. It has now slipped to 5.5 percent, according to S&P Capital IQ. Markets got ahead of themselves: For the first three quarters of the year, the markets put up impressive numbers, with the S&P 500-stock index gaining 17 percent, and the tech-heavy Nasdaq running up over 23 percent. Those are great numbers versus historic average gains of 10 to 11 percent. Given the mediocre post-credit crisis recovery and the softening earnings growth, perhaps markets simply got too far ahead of themselves. Wall Street bet wrong on the elections: Lots of people seem to be saying that recent market turmoil is based on the financial community's evaluation of a possible deal between the White House and Congress. Do not pay much attention to Wall Street's assessment of politics. Let me remind you that the Street made very heavy bets on Mitt Romney winning the election. This was both in the campaign donations made by Wall Street firms as well as how fund managers and traders positioned their portfolios. They all misread what turned out to be an Obama electoral college blowout of 332 to 206. The sell-off since the election is as much about how a mispositioned Street was reversing itself as anything else. Those are probably the three largest factors. Of course, the euro-zone sovereign debt crisis is unresolved, and most of Europe is in a recession. In Asia, growth has been slowing, especially in China and India. And then there is the decreasing impact of Federal Reserve interventions in the markets. We seem to be getting less bang for the buck with each subsequent QE. I submit that all of these other factors are weighing much more on equity markets than the fiscal cliff. I am much more concerned about declining earnings and what they mean for the possibility of a recession in 2014. You should be, too. ~~~ Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of "Bailout Nation" and runs a finance blog, the Big Picture. On Twitter: @Ritholtz.

Student and auto loans still driving consumer credit gains Posted: 08 Dec 2012 06:30 AM PST In the just reported consumer credit data released by the Fed, revolving credit outstanding on a seasonally adjusted basis rose $3.4b m/o/m to $857.6b. That is the highest since May but looking at a longer term chart reflects more bouncing along the bottom. While nominal GDP growth is at new highs, revolving credit outstanding remains 16.5% below the ’08 record highs. AMEX CEO said it best this week at a conference that the US consumer is “generally reluctant to borrow” and “not demonstrating a desire or willingness to increase that debt burden.” On the nonrevolving side of credit outstanding, debt is at an all time high and that’s been mostly driven of late by student loans outstanding. Student loans held at the Fed’l Govt have increased from $104b in 2008 to $516b in Oct ’12. Also boosting the nonrevolving credit side of late has been the increase in auto loans which cheap credit from the Fed has helped to engineer at the same time the ABS market has come back to life in the search for yield.

Weekly Eurozone Watch (12/7/12) Posted: 08 Dec 2012 05:30 AM PST Key Data Points German 10-year Bund 9 bps lower; Ireland 18 bps wider; Italy 12 bps wider; Spain 23 bps tighter; Portugal 1 bp tighter; Greece 158 bps tighter; Large Eurozone banks up  -1.0 to 5 percent higher; Euro$ down 0.49 percent. Comments - France, Portugal, and Greece 10-year yields at lowest weekly close of the year; - Bundesbank cut its growth forecasts for the German economy; - Greece launches debt buyback; - The ECB kept its interest rate at 0.75pc but looks ready to cut next month; - Standard & Poor's warned it could cut Italy's BBB+ rating if the recession continues; -  Italy came under threat to dissolve its technocratic government led by Mario Monti as they lost support from Silvio Berlusconi's PDL party. Source:  Guardian and Telegraph The task facing Italy's government EVEN before Silvio Berlusconi announced that his party would withdraw support for Italy's coalition government, the task faced by the prime minister, Mario Monti, was enormous. Mr Monti came to power after elected politicans had repeatedly failed to do anything to get Italy's economy moving. The hope was that a technocrat with little need to placate interest groups would be able to push through difficult reforms, get the economy to grow and keep bond markets happy. This would have been hard enough were Italy an island. As it is, her neighbours and trading parners are mostly in crisis too. Mr Monti has made a start and done some unpopular things. But Italy's overiding economic problem—a lack of competitiveness that manifests itself in low productivity growth—will take years to fix, not months.  - The Economist     (click here if charts are not observable)

First Look: BMW 4 Series Coupe Concept Posted: 08 Dec 2012 05:00 AM PST A little bigger than the 3 series, with some more attitude and ridiculous 20″ wheels that will never make it to the final version: • Overall length is 182.7 inches; • Its wheelbase is 110.6 inches, or two inches longer than the suddenly stubby-looking 3 Series coupe; • 20-inch wheels; • Interior hearkening back to the Bavarians' glory days of the early '70s; • Hand-braided leather trim elements run vertically down the seats. Lots of photos to follow . . . ~~~ ~~~ ~~~ ~~~ ~~~ ~~~ Source: Automobile Magazine

US in Recession Since July? Posted: 08 Dec 2012 04:00 AM PST Lakshman Achuthan, Economic Cycle Research Institute, says the U.S. has been in a recession since July Source: CNBC.com, Thursday, 6 December 2012 7:51 PM ET

10 Weekend Reads Posted: 08 Dec 2012 04:00 AM PST My longer form readings for your weekend enjoyment — this may be my favorite list in a long time: • Why Too Much Data Disables Your Decision Making (Psychology Today) • The Science Behind Those Obama Campaign E-Mails (Businessweek) • The Ups and Downs of Making Elevators Go (WSJ) • Entitlements Scare Tactics (The Baseline Scenario) see also Greedy Geezers, Reconsidered (The American Prospect) • The rise and fall of Lenny Dykstra (Newsday) • We Are Alive: Profile of Bruce Springsteen at sixty-two (The New Yorker) • The History of Boredom (Smithsonian Magazine) • Why the Art World Is So Loathsome (Slate) • The Making of a Philosophy Professor (The Chronicle) • The Demonic Genius of Daniel Tosh (The Atlantic) see also What's so funny? (The Times Literary Supplement) What are you reading?   Apple’s Power Within Source: WSJ

California Youth Crime Plunges to All-Time Low Posted: 08 Dec 2012 03:00 AM PST

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