How does the amount of time it takes to solve a jigsaw puzzle scale with the number of pieces?
Promotion to Credit Bubble Stocks correspondent First Class to whomever posts the best answer in the comments.
I am still mystified that the Russian market has a much cheaper valuation than the BRIC countries' markets. Brazil is a basketcase, and a blanket policy of avoiding Chinese investments and fake bullion coins seems like the way to go. A Credit Bubble Stocks correspondent has written with thoughts about China:
China has been over-organized for a couple thousand years. A privileged elite consumes all of the potentially productive capital that innovators might otherwise use to create additional capital. So China's list of inventions is paltry. Today, to some extent it compensates by industrial espionage.The point about wealth coming from thinking and acting on sound information is true. We know this from Mises treatise on economics: Human Action. The free-market economy surpasses any centralized system. It allows entrepreneurs to rise to top positions in industry and direct production, by earning high profits and serving customers.
The Chinese communist party reduces Chinese wealth by 90-percent or so, compared with what it might be. Then it uses its monopoly of power to steal half or more of these diminished resources from the public.
The Chinese communists impoverish the larger society by preventing other people from thinking and acting on the basis of sound information. That is, they prevent Reed's law economic gains. In other words, for the purpose of maintaining monopoly control, they prevent the formation of wealth-producing subgroups that are independent of them. They only allow a spoke-and-hub organization, with themselves in control of the hub.
The asymptote is to have everyone connected directly to everyone else. Countries that fail to approach this asymptote will find themselves unable to compete with countries that do.
"Alas, the Communists saw absolute power as a mere stepping stone to their true goal: Mimicking a few random characteristics of advanced economies, no matter how many lives it cost."In other words, a cargo cult. The story of Mao's Great Famine is totally appalling, and I'm not sure that most investors know anything about it. Mao killed fifty million people, and the Chinese were reduced to eating each other. As our correspondent writes,
Communist party members were a broad mass of illiterate or semi-literate dregs who had no concept of economics, industry or science. The people who were able to scramble to the top of this heap of rubbish had special personalities.Recently, I've been reading a book about the current Chinese political system, The Party: The Secret World of China's Communist Rulers. Most people do not know that the country is controlled, top to bottom, by the communist party. There were two key takeaways. First, the country is incredibly corrupt. As the book says,
They always ranked themselves at the top of any dimension of goodness and they felt murderous rage when anyone questioned their rankings. They were unable to judge technical talent or rank themselves accurately on any scale of goodness, compared with others.
They were unable to compare their own crude grasp of technical matters with the subtle knowledge of experts. Stalin was especially prone to murder experts. He and Mao had only the crudest, cargo cult caricatures of knowledge of high technical civilization. Their talents were murder and stealth.
Lenin said, "Communism is Soviet power plus electrification of the whole country." In other words, Communism is murder plus electricity.
"Corruption thrives in sectors with heavy state involvement and considerable room for administrative discretion: customs, taxation, the sale of land, infrastructure development, procurement, and any other sector dependent on government regulation. The jobs in government which attracted the most applicants in 2008 were not elite positions in the mandarinate... Of the top ten government bodies which received the most expressions of interest for positions, eight were provincial tax bureaux, topped by Guangdong, all of them along the prosperous coast, and two were the customs bureaux of Shanghai and Shenzhen. The bottom ten, which attracted the least interest, were all provincial statistic bureaux." (p141)Second, the representations made to foreign investors about Chinese companies do not tell the whole story,
"The bulging prospectuses used to sell Chinese state companies ahead of their offshore public listings are crammed with information... but the Party's myriad functions, especially control over top personnel, have been airbrushed out altogether. [...] There is a tacit understanding among western intermediaries to play down the Party's role because people understand that it is not going to sell well in the west." (p22)I am bearish, longer term, on China's prospects, especially if they maintain the current, defective political system. There's evidence of China's lack of invention in The Man Who Loved China. There are individual American inventors, like Edison or Kettering, with a more impressive record of invention than China.
"Morgan Stanley bankers underwriting the CCB listing were caught by surprise... A number quietly suggested that if the Party wielded such influence in CCB, perhaps its role ought to be declared in the prospectus as well. They were quickly set straight. 'Ultimately, no one was under any illusions that the state controlled the companies,' said an adviser to the deal. 'To get into details about the party committees in a way that was provocative and tendentious was neither productive nor necessary.'"(p52)
I just read an interesting paper called Perils of the Periphery: Social Network Position and Hedge Fund Performance. The author, Joon Nak Choi, looks at how the position of hedge funds in a social network (with network ties consisting of fund managers and employees who have worked together previously) affects results.
Ordinarily, sociologists talk about social networks in terms of a core-periphery structure, having a core that consists of prestigious, highly-connected nodes, and a periphery with nodes that have fewer connections.
Researchers already know that highly-connected funds in the core of the industry perform better than peripheral funds with fewer connections. A common hypothesis is that peripheral funds are likely to be late adopters of ideas, because innovations must be first be legitimized by being adopted by funds in the core. The result is that,
"As early adopters, the core is likely to carefully assess the technical merits of the innovations they adopt. As late adopters, the periphery may not focus on innovation’s technical benefits, as much as their legitimizing effects. Given this tendency, late adopters [i.e. the peripheral funds] may be particularly vulnerable to adopting practices and innovations that reward early adopters, but punish late adopters."The reason that legitimizing effects are so important, and the pattern of johnny-come-lately investing continues, is that the younger managers (who are running peripheral funds with fewer connections) "seek safety and legitimacy by copying prominent managers." One of the results of this is herding behavior, or as we call it on Credit Bubble Stocks: groupthink. And the investors who are late to the party get left holding the bag.
"While first-movers in the core should fully benefit from inflating asset bubbles, their imitators in the periphery should be left 'holding the bag' when the bubbles collapse. In contrast, isolates have no way of knowing about core managers' investment positions, and consequently no means of imitating these positions."There are a number of fascinating implications of this. The copycat, me-too, funds in the periphery apparently serve as a dumping ground for the trades that the funds in the core have put on and are looking to unwind. Meanwhile, there are funds which are isolated, either by choice or not, from Wall Street groupthink.
Interesting blog post at the NY Times:
So can you be considered a genius, a visionary, if the globally dominant network you built wasn’t the fruit of far-reaching vision — if, indeed, the network’s internal momentum was such that it was almost destined to build itself, and the question was only which driven and capable entrepreneur would happen to be standing at the right place at the right time when it started to unfold?The Facebook invention disputes are an example of simultaneous invention.
My own view of technological history is that this is often the way big leaps happen. The people we call visionaries and geniuses, like Bill Gates, typically weren’t any more prescient than some of their rivals. They were mainly just in the right place at the right time.
Sure, they were really smart, and they had some other key features. Gates and Zuckerberg shared an instinct that helped them exploit network externalities: they were always willing to sacrifice short-term profit in exchange for growing market share.
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