OK, I want to learn - where do I start?

[S]

iTulip is making me into an economics junkie, but I'm a layperson and overall rookie to the field of economics.

If I want to get a good grounding in the best schools of thought - learn the basics - what books do the professionals on this board recommend? And which "schools" of economics are favorites?

(And what does the onset of this fetish of mine signal???)

Many thanks.

[jk]

who's worth listening to?

check out the thread called "who do you read? who do you trust?"

[Jim Nickerson]

iTulip is making me into an economics junkie, but I'm a layperson and overall rookie to the field of economics.

If I want to get a good grounding in the best schools of thought - learn the basics - what books do the professionals on this board recommend? And which "schools" of economics are favorites?

(And what does the onset of this fetish of mine signal???)

Many thanks.

The answer to what signal is generated by your fetish probably depends on where your money is.

I think this past weekend on one of the threads, one fellow said he was going to sell all his positions and get into cash. That may have been a buy signal.

[blazespinnaker]

random walk down wall street is probably the best place to start.

[jk]

fetishes and randomness

iTulip is making me into an economics junkie, but I'm a layperson and overall rookie to the field of economics.

If I want to get a good grounding in the best schools of thought - learn the basics - what books do the professionals on this board recommend? And which "schools" of economics are favorites?

(And what does the onset of this fetish of mine signal???)

Many thanks.

re your fetish- i'm a psychiatrist in my day job so i guess i'm qualified to comment. i think people are increasingly insecure in light of the ongoing changes in both our economy and our polity. volatility in the markets has been low for a few years until the last few weeks, but volatility in peoples' lives has certainly increased, with diminished job security, pensions evaporating into thin air, increasing numbers of americans without health insurance, huge corporate bankruptcies and scandals, questions about the solvency of government entitlement programs, terror alerts color coded to remedy slides in the polls, government statistics that don't jibe with your personal experience, 2500 american kids killed in iraq, iran wanting to go nuclear, kim il sung shaking his missiles at us, americans in europe lying to say they're canadian to avoid vituperation - need i go on?

so you can't count on your income, you can't count on your pension, you can't count on your healthcare, you can't count on your investments and, of course, you can't count on the dollar being worth anything in particular.

but, here in these discussions and articles, and in other similar venues and numerous articles, magazines, news services, and investment advisories, you have at least the HOPE of figuring something out that might make your life better, and might provide more predictability to your future circumstances.

so, the more aware you are of the shaky foundations of the world and the economy, the more you are eager to find some shred of hope and understanding to cling to.


re: request for reading material- let me disagree strenuously with the recommendation of random walk down wall street. efficient market theory, which that book espouses, has been thoroughly discredited except in the eyes of a handful of academic economists. [it's like the fact that the only marxists in the world are in the english and american studies departments of american universities.] if you want to read a really interesting and thought provoking book, let me recommend fooled by randomness. [if you start with 1024 money managers and each year each manager flips a coin to determine if he's up or down, at the end of 8 years you'll be left with [on average] 4 guys who work in glass walled offices and manage billions of dollars. john mauldin says you can predict which are the ones who are going to "blow up" the following year. they're the ones you invested with.] fooled by randomness will educate you in risk and uncertainty, and is a fun read as long as you don't let yourself get too annoyed with the self-love of the author.

[bart]

iTulip is making me into an economics junkie, but I'm a layperson and overall rookie to the field of economics.

If I want to get a good grounding in the best schools of thought - learn the basics - what books do the professionals on this board recommend? And which "schools" of economics are favorites?

(And what does the onset of this fetish of mine signal???)

Many thanks.

Welcome to one of the most "fun" filled and false data filled areas of life... and may your fetish be as amusing to you as my various ones are to me... ;)

My preference is generally the Austrian school but even more basic than that is literally a dictionary, and not one of the ones in the last decade or so.
I've attempted to put a basic glossary together at my site ( http://www.NowAndFutures.com ) that may help, and I also have an investing page that may help. Start with the definitions of economics and inflation - and good luck!

The Austrian school is pretty well represented at mises.org... but even a full study of Keynes will show that he wasn't all that different from the Austrians. He's well known for pumping up a bad economy but what isn't at all well known is that he also favored paying it back in good times - its the politicians and "Powers That Be" that ignored the pay back aspect.

[JD_]

The answer to what signal is generated by your fetish probably depends on where your money is.

I think this past weekend on one of the threads, one fellow said he was going to sell all his positions and get into cash. That may have been a buy signal.

I didn't know my portfolio modifications had any predictive value for whether others should buy or sell. I thought I was realizing long term capital gains on equity positions which I had come to believe had very large uncompensated risk.

JD

[jk]

equity risk

I didn't know my portfolio modifications had any predictive value for whether others should buy or sell. I thought I was realizing long term capital gains on equity positions which I had come to believe had very large uncompensated risk.

JD

jd, i think you DID realize long term gains on positions in which you had uncompensated risk. just because equities bounced 2% on one day doesn't mean they were worth holding. you can't worry about these market quavers; you need a stance you can live with going forward. the markets aren't going to disappear, you can always trade PROVIDED YOU HAVE CAPITAL. lose your capital and you're out.

i've always hated emoticons but perhaps they're necessary. i don't think jim meant anything snide in his comment. from what i know of him, his remark was more a rueful acknowledgement of how we all can zig and then wish we'd zagged. similarly, i fantasize that you felt stung by his remark, but that may be me reading into your response, perhaps because i always hate it when i sell something and it immediately bounces, or buy something and it immediately drops.

people discussing gold last week said if you bought then you might regret it in a week, but you'd be happy in a year. turns out you would have been happy in a week, too, but who knew?

[Jim Nickerson]

Decisive action.

I didn't know my portfolio modifications had any predictive value for whether others should buy or sell. I thought I was realizing long term capital gains on equity positions which I had come to believe had very large uncompensated risk.

JD

JD,

I am sorry I could not recall your post-name to reference the discussion of your dilemma. Based on all you wrote, I think you made the right decision for yourself. I guess when I read your final comment, as I remember was in effect "tomorrow I'm liquidating everything," I had one or two thoughts: 1, if I did that for certain the market would go up and up, and 2, back in 2002 near the end of September, I visited a colleague in NM and during dinner he told me he was wiped out mentally from worrying over his losses from the 2000 top. He said that week he called his broker and told him to sell everything he still owned, and totally ignored the broker's advice not to sell everything, but he was sick of being sick. I told him 3 or 4 months later in retrospect, he was probably the last bull to capitulate at the bottom, but I am sure still others followed him, but I told him his capitulation turned out to have been a "buy signal" that was 3 or 4 weeks early. However, there is a heckuva lot of difference I believe in where the market had been in Sept 2002, and last week. We are still closer, I believe to a significant top than to a significant bottom, short time bottom? Perhaps, but NOBODY I know picks tops and bottoms perfectly.

Perhap your going to cash was the "go long" signal of the century, but I doubt it. Given the choice right now of being totally long with no intention to sell--just hanging on to false hope the market will always go up, or being 100% in cash, I would take the latter 10 or 100 to 1. I meant nothing snide about you. You came across as knowing your dilemma well, and had the cojones to act upon what you thought best for your well-being. I cannot say such has always preceded some of my lame-brained decisions.

Money markets are paying decent interest for the moment, so that isn't killing you. I think probably before the year is out you will look upon your decision as having been wise. I think Bernard Baruch said something to the effect I alway sell too soon and buy too late, but the guy made money over the long run. You have a lot of "dry powder" now, and your dilemma becomes what next to do and when, any time wasted thinking about, worrrying about past decisions is wasted time, though lessons learned, if learned should not be forgotten. Focus and worry forward. Good luck, believe me I meant no disrespect to your reasoning.

[S]

JK, hitting the nail on the head

JK - in terms of my fetish, you're 100 percent correct - I hadn't thought about it that way. You must be really good at your day job.

My family has been touched personally by nearly everything you named in your post. From the high-highs to the low-lows in the past six years - you're heard of zero to 60 in six? We went in reverse, from millions (Bubble Era currency; i.e., paper millions) to zero, in what seemed like six seconds. I came out of that determined to never miss any signals that would inform me.

Ergo, I'm a rookie to this kind of discussion but a veteran of other things.

In the U.S., things are now arranged so that there is no margin for error. And even the most secure families are one health plan and one major illness - and one market machination - away from disaster on an epic scale. Most people truly don't understand how fast it can happen to them. It was breathtaking.

So, fetish understood - as well as my investing philosophy. I've become perhaps overly conservative, moving most everything to a safe, boring haven (albeit one guaranteed at 5.25 - just enough to be wiped out by inflation) because recent volatility didn't smell right to me (and I was previously a nerves-of-steel holder). Too much recovery by the pros on the retail downside; stop, repeat, stop, repeat. Time to get off.

In the meantime, I try to understand how to move through an economy that seems entirely like a trip through the Looking Glass - with extra acid added. We have to greenfield housing (see saga above), and my friends think I'm part of the lunatic fringe because I have my family parked in an apartment and have refused to buy through the past five years in a nutty market (urban mid-Atlantic). (OK, I coulda, woulda, shoulda if I wanted to leverage it and count on the upside - but the housing where I live is not worth these prices from a fundamentals standpoint. I marvel at what people *think* housing is worth - but I guess that is what it's worth ... or was.)

I'm cautiously getting us back into equities, but in a value mode - because I don't understand what other mode to use. (And I'm not capable of doing some of the market tap-dancing I see described here. I couldn't be trusted with a short to save my ... shorts.) My greatest concern is that from my limited understanding, the government is motivated to let our currency float to wispy fiat to blow the losses back at foreign central banks over the next couple of years - and damn the U.S. consumer, investor, citizen, et al. Should make for an interesting binge, but the hangover is going to be hell. I don't see any other way out of this mess. (I remember post-Nixon, I remember post-Reagan, and I will always remember post-Bush now too. I just try to forget Ford and Carter.) So, what to do, what to do ...

I have little to add, but everything to learn.

OK, the usual joke: Where do I send my payment, doctor?

[jk]

my payment

s, my payment will be you following some advice i've already given:
check out my post at "who do you read? who do you trust?" and follow some of my recommendations about what and who's worth reading, and check out fooled by randomness- [you can get the latter at the public library] [the 2nd edition really is enlarged from the 1st, so go 2nd edition].

someone smart [i don't recall who] wrote that whenever he made an investment decision, he was always anxious that he was making a mistake, and if he felt confidant about a decision he knew he hadn't thought about it enough. i concur.

[JD_]

JD,

I am sorry I could not recall your post-name to reference the discussion of your dilemma. Based on all you wrote, I think you made the right decision for yourself. I guess when I read your final comment, as I remember was in effect "tomorrow I'm liquidating everything," I had one or two thoughts: 1, if I did that for certain the market would go up and up, and 2, back in 2002 near the end of September, I visited a colleague in NM and during dinner he told me he was wiped out mentally from worrying over his losses from the 2000 top.

Jim,

I'm not so worried about the equity markets going up. I was worried about the uncompensated risk I was taking on by being fully invested in a basket of world equities and US bonds when I believe a number of long term trends are working in their disfavor. I'm not good at calling short term tops and bottoms in the market so I don't try to exploit them. What I had been doing until I sold was ignoring long term trends which I actually do believe can be exploited. I was basically hoping it would all just work out.

This probably will seem unconnected but I had an epiphany about three weeks ago that ended with this conclusion "those poor, poor hard working Chinese are going to be left holding the bag!" It all started with a newspaper article I read about 10 real estate transactions in south Florida. I won't bore you with the details but just know by the end of the article I had determined that massive fraud had been perpetrated by a seller insta-flipping homes at a 50% markup to a cut-out "buyer". This "buyer" had managed to secure 10 different no document mortgages in less than a month. This "buyer" also just had an annual income of $22K and managed to buy $4M in homes with no money down. Light bulb goes off! This "buyer" is going bankrupt. This seller has just booked 50% profits. There will be a kickback coming to compensate the "buyer". The mortgage brokers have all now made money. The real estate agents have all now made money. The banks lending the money have all made money. The mortgages are going to be sold and then repackaged as an MBS (Mortgage Backed Security). More money will be made. MBSes similiar to ones I actually held in a bond fund I owned. The MBSes that are also going to be sold to most likely a foreign entity (say those aforementioned "poor, poor hard working Chinese"). Sales necessary to do something with all those dollars they are acquiring through the continuing imbalance in trade. End result..."those poor, poor hard working Chinese are going to be left holding the bag!"

I decided I didn't also want to be the one holding the bag when it comes time for a possible retirement. Is the above linking of events extreme? Yes, of course. It's just an example how I concluded risk is getting exported from the US to the newly industrializing nations. At some point they are not going to want to finance Joe Sixpack's very bad financial decision that he can afford to buy that house even though his real wages are continously declining and he's buying an overvalued asset. Just because the bank is playing pass the hot potato does not mean Joe Sixpack should be buying or the Chinese should be holding. I don't think it's going to end well for either Joe or the Chinese. I didn't think it was going to end well for myself either so I sold all my equities and bonds. So that one newspaper article resulted in this long chain of events in my mind ending with my decision to reevaluate what I've been holding. I don't know how things are going to play out but I decided to take my profits off the table. I don't want to be long a bubble.

JD

[jk]

Jim,

I'm not so worried about the equity markets going up. I was worried about the uncompensated risk I was taking on by being fully invested in a basket of world equities and US bonds when I believe a number of long term trends are working in their disfavor. I'm not good at calling short term tops and bottoms in the market so I don't try to exploit them. What I had been doing until I sold was ignoring long term trends which I actually do believe can be exploited. I was basically hoping it would all just work out.

This probably will seem unconnected but I had an epiphany about three weeks ago that ended with this conclusion "those poor, poor hard working Chinese are going to be left holding the bag!" It all started with a newspaper article I read about 10 real estate transactions in south Florida. I won't bore you with the details but just know by the end of the article I had determined that massive fraud had been perpetrated by a seller insta-flipping homes at a 50% markup to a cut-out "buyer". This "buyer" had managed to secure 10 different no document mortgages in less than a month. This "buyer" also just had an annual income of $22K and managed to buy $4M in homes with no money down. Light bulb goes off! This "buyer" is going bankrupt. This seller has just booked 50% profits. There will be a kickback coming to compensate the "buyer". The mortgage brokers have all now made money. The real estate agents have all now made money. The banks lending the money have all made money. The mortgages are going to be sold and then repackaged as an MBS (Mortgage Backed Security). More money will be made. MBSes similiar to ones I actually held in a bond fund I owned. The MBSes that are also going to be sold to most likely a foreign entity (say those aforementioned "poor, poor hard working Chinese"). Sales necessary to do something with all those dollars they are acquiring through the continuing imbalance in trade. End result..."those poor, poor hard working Chinese are going to be left holding the bag!"

I decided I didn't also want to be the one holding the bag when it comes time for a possible retirement. Is the above linking of events extreme? Yes, of course. It's just an example how I concluded risk is getting exported from the US to the newly industrializing nations. At some point they are not going to want to finance Joe Sixpack's very bad financial decision that he can afford to buy that house even though his real wages are continously declining and he's buying an overvalued asset. Just because the bank is playing pass the hot potato does not mean Joe Sixpack should be buying or the Chinese should be holding. I don't think it's going to end well for either Joe or the Chinese. I didn't think it was going to end well for myself either so I sold all my equities and bonds. So that one newspaper article resulted in this long chain of events in my mind ending with my decision to reevaluate what I've been holding. I don't know how things are going to play out but I decided to take my profits off the table. I don't want to be long a bubble.

JD

a really interesting post, jd. i've also had the experience of reading a tidbit somewhere that causes me to make major shifts in my portfolio - though none quite as major as you just did. i wonder if it's possible to deduce a priori what newspaper article or investment tidbit could trigger such a shift? wouldn't you like to know what input could trigger your next epiphany? if you could figure that out, you would know what to be looking for or researching, or perhaps you'd make the shift at least partways without the trigger at all.

i have also had the thought that our foreign creditors are going to be left holding the bag. years after the big splash acquisition, the japanese ended up selling rockefeller center for pennies on the dollar. this will be a replay on a much larger scale. our problem, however, is that although the treasury and gse and corporate paper they hold will shrivel in value, at the end of the day our economy is still going to be a hollowed out paper shuffling operation.