Musings Report #12 3-23-13 Managing Rather Than Solving Problems
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Managing Rather Than Solving Problems
My longtime friend G.F.B. recently alerted me to a fascinating and profound conceptual divide between managing problems and solving problems. Is this another instance of being unconsciously captured by words that double as concepts? Perhaps.
We say we manage our health and manage our risk, but we expect disease to be cured (solved) and economic problems to be remedied. Perhaps the concept of remedying/solving things boxes us into unrealistic expectations.
G.F.B. noted that one characteristic of the "we need to fix this" mindset is a heightened sense of non-negotiable demands by the participants: no one can risk being left out of the solution, whatever it might be. This rigidity actively inhibits the process of working through problems and improving results.
It may well be, as G.F.B. observed, that some situations do not lend themselves to a permanent, complete solution, for example income inequality and housing the poor in developing countries.
I think we all have experienced the difference between these two mindsets and goals: in the "we have to solve this once and for all" mindset, participants become strident and unwilling to compromise, lest their treasured solution or stake be sacrificed or lost.
When the goal is an incremental but meaningful management of a complex, multiple-input problem, the smaller, more modest in scope and much better focused improvement becomes much more acheiveable, and emotions tend to run at much cooler temperatures.
When we try to tackle "fixing our schools," for example, a cacophony of highly charged voices immediately arises. If we propose instead managing the various systems that make up our schools (perhaps starting with a transparent budget) with a goal of managing existing resources to improve results, then the mood and process are more conducive to actual improvement of what's broken.
Sometimes the system is so broken that even this basic participatory process is impossible. When that is the case, then the collapse of the dysfunctional system is the first step forward, whether we are attempting to manage or fix what is visibly broken and not working.
In the case of housing the very poor in developing-world megalopolises, sometimes running one new water tap and distributing water filters to the community might do more for people's everyday lives than costly and grandiose schemes for "solving the problem" by building thousands of new units that never get built because the "solution" is simply beyond reach for multiple reasons.
Market Musings
Like many others, I have noticed an apparent paradox: while there is abundant evidence of a slowing global economy, there is little persuasive evidence that U.S. stock markets are poised to decline, as one might expect in a global slowdown.
The conventional answer is that the equity market is being driven higher with central-bank printing, and while this is undoubtedly a factor, there may well be a sense that there is no other game in town other than investing in housing, but buying rental properties is quite a bit more difficult than clicking a mouse button.
Here is a chart of the SPX with ADX, a trend tool. The black line represents the strength of the current trend (up is a strong trend, down is a weakening trend), the green line is the bullish trend and the red is the bearish trend.
Though the overall trend is weakening, the bullish trend line has decline significantly. Yet price has barely moved down. This suggests a market of some resilience, and as such one that may not decline as soon or as sharply as many expect. Rather, it appears the market has been consolidating. Perhaps it will fall off a cliff, but it may well continue up to new highs.
Nonetheless, copper fell out of the wedge mentioned last week, reflecting a global weakening of future demand. But gold (the ultimate inflation/unsound money hedge) rose in its wedge, as did oil (WTIC). This might reflect a market that foresees inflation even as global demand for construction and manufacturing commodities fades.
In other words, oil could rise in an inflationary environment even as copper, cement, etc. decline as demand in China slackens.
What is noteworthy in 2013 is how the commodities such as sugar, cocoa and coffee have been absolutely smashed. I don't claim any insight into the causes of this, but I doubt global demand for chocolate and coffee has fallen off a cliff. This suggests these commodities may be bottoming.
I have been buying the beaten-up gold miners, as noted here for many weeks, and the next chart of Gold Miners Bullish Percent Index (BPGDM) shows a sharp rise off what appears to be a major bottom.
With the euro recovering and the equity markets resilient, the gold miners may pause here to consolidate their rapid gains. I took a bit of profit off the table, following my trading philosophy that while we can always buy back into a trending market, we cannot go back in time and recover a profit lost to greed or complacency.
What I am doing: buying junior domestic oil companies and beaten-up tech names
What I would do if I were managing $1 billion: Start building positions in cocoa, sugar and coffee, and continue adding to tech stocks that have been hammered down 20+%. Once those names in the lead top out, players will look to the laggards for quick gains. The rapid advance of the weakest names and sectors generally characterizes a topping process.
NEW FEATURE: The best thing that happened to me this week
On the suggestion of a longtime supporter/reader, I'm adding a new feature to the Musings: the best thing that happened to me this week. It might be personal, or it might be a global news event, but this week it was our peach tree blossoming in a profusion that far surpassed the past few years. Was it my tender attention to the tree's well-being, or a harmonious conjunction of cold, rain and sun? I don't know, but these blossoms made me smile.
From Left Field
My Amazon bestseller made me nothing: (a bit of an exaggeration--he pulled down $12K) "My novel shot to the top of the site's bestseller list last summer. You won't believe how little I got paid..." $5,000 for a book from a major publisher is the new normal--for established authors. Newbies might get a $500 or $1,000 advance...
This Protein Could Change Biotech Forever: multiple edits of DNA, a technique picked up by studying the immune responses of bacteria. Good thinking--they've been around for 1 billion years, and have selected the best....
One of the cutest little cars ever: A restored BMW Isetta (10 min. video, via Kevin O.) Some of the comments are off-base; this car was engineered over 50 years ago, for goodness sake (late 1950s); of course a modern version would have more advanced engineering. But just look at this cute thing go....
Thanks for reading--
charles
