The Wall Street Journal reports that PG&E, California’s largest utility, has declared bankruptcy because of its inability to cope with the costs of climate change. This rather stunning news is expected by observers to repeat itself in coming months. PG&E’s immediate problem appears to be the wildfires that its power lines have caused in its tinder dry surroundings.
This is NOT a defence of GM but it does try to raise an issue that I have not heard discussed. Simply put: Life is uncertain and we all live with that fact. All kinds of things can happen to us when we walk out the door, including catching an airborne disease from someone else on the street. We could protect ourselves from all these risks by wearing a hazmat suit and surrounding ourselves with a big rubber band. We choose not to because each of us does a cost-benefit analysis on an ongoing basis. Yes, we might catch flu and die but we offset that possibility with the inconvenience of wearing a mask. We figure that the benefits are not worth the costs. In short, there is nothing that is 100% safe — or, more correctly put, nothing is 100% safe unless we are willing to spend an awful lot of money. Continue reading
Today’s New York Times wonders whether Facebook is fading. My own experience is definitely. I have dozens of friends who have stopped contributing. Birthdays bring out greetings as do weddings and births. But apart from those announcements, contributions from most people are few and far between. I was surprised recently to discover how many of my young friends were on Twitter and how few were contributing to Facebook. My own sense then is that this is not the time to be buying shares in Facebook. Of course, I might yet be surprised.
A fascinating article in the New York Times by a retired trader, now neuroscientist at Cambridge John Coates entitled “The Biology of Bubble and Crash.” In it, he notes that when someone enters a trade, the body feeds testosterone into the system of the trader, creating a sense of invincibility and generating a very high tolerance for risk. Bad news, however, feeds cortisol into the system generating an irrational level of risk aversion.Our models tend to assume that people have a relatively stable level of risk aversion. Investment houses give tests to be filled in at home after hours to determine one’s tolerance for risk. What Coates work has shown, is that risk tolerance fluctuates wildly and does so at the hands of our hormones. Younger males — the typical traders — are particularly susceptible to volatile body chemistry.
The passing of Steve Jobs yesterday brought forth a number of great tributes to his genius. He was the creator of Apple, they said. He was the mastermind at Apple, they said. He single-handedly brought Apple back from the dead. Every product passed through his hands, they said. And so it went — understandably. But what was missing in all these tributes was one that called him the great team builder. Continue reading