Would you like the Mona Lisa if others didn’t? Would you still think Beethoven’s Pastoral Symphony was good? Would you still think the songs of the Beatles were superior to those of, say, Justin Bieber?
In a report last week on NPR’sMorning Edition, Alix Spiegel raised the question of whether our collective aesthetic judgments are due more to chance than we think. She reported that a Princeton professor named Matthew Salganik has run an experiment addressing precisely this issue.
The test went as follows: Some 30,000 teenagers recruited online were separated into nine groups and exposed to a collection of 48 songs from emerging recording artists. They could download the ones they liked best for free. The findings? If they could see a history of what their peers in their group had already picked, the teens often joined the crowd, giving certain songs momentum. But the songs that emerged as leaders differed from group to group. A song that came in first in one group came in 40th in another.
“There were differences in the beginnings, and then the process of social influence and cumulative advantage sort of magnified those small, random initial differences,” Salganik told Spiegel.
The takeaway, in Salganik’s view, goes beyond music: “I think that if you believe that there’s a large role for chance in the outcomes that people have and the kinds of success that people have and also the kinds of failures that people have, it changes how you treat other people,” he said.
In other words, we ought to be a bit humbler about our success and recognize the role of luck.
As far as Peter Drucker was concerned, he maintained that some works of art have inherent qualities that elevate them into the realm of the sublime—regardless of audience differences. For instance, in the case of Dante’s Divina Commedia, it is the “multiplicity of levels on which this book can be read, from being a fairy tale to being a grand synthesis of metaphysics, that makes it the overpowering work of art that it is,” Drucker wrote in a 1969 essay on communication.
But not even the greatest art can be counted on to promote itself, and even Dante required sales and distribution. As Drucker wrote in Post-Capitalist Society, “Even the most solitary artists, writers or paintersdepend on others for their work to become effective—the writer on an editor, a printer, a bookshop; the painter on a gallery.”
And while luck has a big role in our lives, and many things are a matter of chance, long-term success tends not to be. “‘Opportunity is where you find it,’ says an old proverb. It does not say: ‘ . . . where it finds you,’” Drucker noted in Managing for Results. “Luck, chance and catastrophe affect business as they do all human endeavors. But luck never built a business. Prosperity and growth come only to the business that systematically finds and exploits its potential.”
Global markets have been falling on worries over conflict in the Ukraine. Is this the end of the multi-year bull market that has taken stocks to record highs recently? In a word no, but there are some important economic impacts that will be lasting; below, my top three market takeaways:
Oil prices will stay higher than they should be based on demand. There’s been a lot of talk in recent months about the impact of the shale oil and gas revolution in the U.S. We’ve got so much more energy coming online at home, surely it will mean lower prices, especially when you consider that big emerging markets like China are slowing and buying less oil, right? Wrong.
The lesson from the Ukraine is that geopolitical risk matters a lot in oil markets – prices were already over $100 thanks to worries over conflict in Syria and general turmoil in the Mid-east. They are now being pushed up further as the situation in the Crimea heats up, even though other commodities have been falling because of slow demand. The world has enough energy – but just the perception that some of it may be cut off is enough to keep prices higher than they should be.
High oil and gas prices will allow Russia to play petro-politics with Europe, making effective sanctions difficult to implement. The U.S. isn’t dependent on Russian gas, but Europe gets about 40 percent of its supply from Russia, much of it via pipelines that flow through the Ukraine. Germany and the Netherlands in particular will be affected, in part because of bad energy policies that have already pushed up prices in those markets.
German banks also have large investments in Russia, so Europe may not be able to play tough on sanctions. Why can’t the U.S. just export some of its gas to Europe if Russia plays hardball? Because unlike oil, gas is a localized market – and the first American LNG export terminal won’t be completed until next year.
U.S. blue chips will likely rebound, but mainly because of the “prettiest house on an ugly block” phenomenon. I’ve been worried about frothy U.S. markets for some time .(U.S. large cap stocks are trading at 17 times earnings, close to the multi-year highs of last year.) Technology in particular feels like it’s in bubble territory ($19 billion for WhatsApp? What?).
But look around – where else are you going to put your money if not in high quality U.S. stocks? Even before the trouble in the Ukraine, emerging markets were doing badly – Russia and Turkey are tanking, India and Brazil are stalling and China is brewing up a real estate bubble that could make pre-2008 Florida and Arizona look like small potatoes. Europe is trying to stave off deflation, double-digit youth unemployment and possibly now higher energy prices thanks to the trouble in the Ukraine. Meanwhile, the U.S. will grow faster than the world economy as a whole this year. Valuations may be inflated, but it’s only after this bout of geopolitical conflict is over that we will we see a correction that really reflects whether the Fed inflated bull run has come to an end.
OMAHA, Neb. — Investor Warren Buffett says the economy continues the steady improvement that began in fall of 2009 and he remains optimistic about the future.
Buffett appeared on the business cable channel CNBC Monday morning after releasing an upbeat annual letter to his Berkshire Hathaway shareholders over the weekend. Buffett is chairman and CEO of the Omaha, Neb., conglomerate.
Buffett says the reports he gets from Berkshire’s 80-odd subsidiaries in a variety of industries show that the economy is growing at a moderate rate.
He notes that there’s been little change in the growth rate since 2009, despite swings in investors’ mood.
But Buffett says he doesn’t make investment decisions based on the economy. He says he focuses on the prospects of the business in which he’s investing, and the price.
Warren Buffett, Chairman and CEO of Berkshire Hathaway answers questions at a press conference in November, 2013
Warren Buffett’s investing conglomerate saw record profits in 2013 of $19.5 billion, riding a wave of economic improvement in the United States, the company said in its annual report released Saturday.
Buffett’s holding company Berkshire Hathaway exceeded analysts’ expectations of $18 billion and saw significant gains over 2012, when it posted net profits of $14.8 billion.
The company’s stellar performance depends on well-known consumer goods and services that do well in economic boom times, as Buffett chiefly invests in established, large companies like Walmart, General Motors, American Express, and Coca-Cola.
Buffett’s annual shareholder letter, known for its rustic tone, emphasized his commitment to supporting American companies for the long term.
“Who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. And the dynamism embedded in our market economy will continue to work its magic,” the so-called “Oracle of Omaha” said in the letter. “America’s best days lie ahead.”
Berkshire purchased major assets of NV Energy and H. J. Heinz Geico, which “will be prospering a century from now,” Buffett said. Berkshire’s insurance company reported a $394 million operating profit in the fourth quarter.
Buffet’s conglomerate didn’t edge out the S&P 500, which grew at a phenomenal rate of 32.4% last year, while Berkshire saw a gain in per-share book value of 18.2%. Since 1965, Berkshire has seen a compounded annual gain of 19.7%, while the S&P 500 has increased 9.8%.
Buffett, 83, has helmed Berkshire for more than half a century and overseen its growth into a $288 billion holding company.
TOKYO — The sudden disappearance of one of the largest bitcoin exchanges only adds to the mystery and mistrust surrounding the virtual currency, which was just beginning to gain legitimacy beyond the technology enthusiasts and adventurous investors who created it.
Prominent bitcoin supporters said the apparent collapse of the Tokyo-based Mt. Gox exchange was an isolated case of mismanagement that will weed out “bad actors.” But the setback raised serious questions about bitcoin’s tenuous status and even more tenuous future. At least one supporter said the blow could be fatal to bitcoin’s quest for acceptance by the public.
A coalition of virtual currency companies said Mt. Gox went under after secretly racking up catastrophic losses. The exchange had imposed a ban on withdrawals earlier this month.
By Tuesday, its website returned only a blank page. On Wednesday it displayed a notice to customers that said all transactions were closed “for the time being” to protect the site and customers. The collapse followed the resignation Sunday of CEO Mark Karpeles from the board of the Bitcoin Foundation, a group seeking wider use of the exotic currency.
Mt. Gox’s origins are rooted in fantasy instead of finance. The service originally specialized in trading colorful cards featuring mythical wizards and derives its name from a game. The initials stand for, “Magic: The Gathering Online Exchange.”
San Francisco-based wallet service Coinbase and Chinese exchange BTC China sought to shore up confidence in the currency by saying the Mt. Gox’s situation was isolated and the result of abusing users’ trust. They offered no details.
“As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today,” the statement said.
Since its creation in 2009, bitcoin has become popular among tech enthusiasts, libertarians and risk-seeking investors because it allows people to make one-to-one transactions, buy goods and services and exchange money across borders without involving banks, credit card issuers or other third parties. Criminals like bitcoin for the same reasons.
For various technical reasons, it’s hard to know just how many people worldwide own bitcoins, but the currency attracted outsize media attention and the fascination of millions as an increasing number of large retailers such as Overstock.com began to accept it.
Speculative investors have jumped into the bitcoin fray, too, sending the currency’s value fluctuating wildly in recent months. In December, the value of a single bitcoin hit an all-time high of $1,200. In the aftermath of the Mt. Gox collapse Tuesday, one bitcoin stood at around $470.
Central banks across the globe have been hesitant to recognize bitcoin as a form of money, and Tuesday’s vanishing act isn’t helping.
Japanese officials appeared reluctant to react, with the Finance Ministry and Financial Services Agency both saying Wednesday a virtual currency like bitcoin was not under their jurisdiction. Tokyo police declined comment. Chief Cabinet Secretary, Yoshihide Suga, said the financial regulators are gathering information and “if necessary, I believe they will act on this.”
Mt. Gox “reminds us of the downside of decentralized, unregulated currencies,” said Campbell Harvey, a professor at the Duke University Fuqua School of Business who specializes in financial markets and global risk management. “There is no Federal Reserve or IMF to come to the rescue. There is no deposit insurance.”
However, Campbell said, Mt. Gox’s disappearance “doesn’t mean the end of the road” for bitcoin and other virtual currencies.
The collapse “might represent the end of the ‘wild west,’ where anyone can set up shop and deal in crypto-currencies,” he said. But “increasingly sophisticated investors” are funding serious ventures that will “raise both quality and confidence.”
Peter Leeds, a publisher of newsletter focused on risky investments, doubts bitcoin will recover from the Mt. Gox collapse. He expects the currency to plunge below $300.
“It’s more likely that someone getting involved in bitcoin at this point of the game is going to lose,” Leed said. “There are all sorts of problems inherent with bitcoin that are just now coming to light.”
Documents purportedly leaked from Mt. Gox lay out the scale of the problem. An 11-page “crisis strategy draft” published on the blog of entrepreneur and bitcoin enthusiast Ryan Selkis said that 740,000 bitcoins were missing from Mt. Gox. That represents roughly 6 percent of the estimated 12 million bitcoins that have been created so far, translating into hundreds of millions of dollars’ worth of losses, although figures are fuzzy given the currency’s extreme volatility.
“At the risk of appearing hyperbolic, this could be the end of bitcoin, at least for most of the public,” the draft said.
In a post to his blog, Selkis said that the document was handed to him by a “reliable source” and that several people close to the company had confirmed the figures. Reached by phone, he declined to comment further. The Japanese government has not announced any formal investigation.
The scandal may cost customers dearly.
At the Tokyo office building housing Mt. Gox, bitcoin trader Kolin Burges said he had picketed outside since Feb. 14 after traveling from London in an effort to get back $320,000 he has tied up in bitcoins with Mt. Gox.
“I may have lost all of my money,” said Burgess, next to placards asking if Mt. Gox is bankrupt. “It hasn’t shaken my trust in bitcoin, but it has shaken my trust in bitcoin exchanges.”
Mt. Gox CEO Karpeles did not immediately return several messages seeking comment. A security officer at the office building said no one from Mt. Gox was inside. Tibbane, an Internet company that Karpeles is CEO of, still has its name listed on the building’s directory.
“I have no idea” where they are, said Burges, the trader. “I’m both annoyed and worried.”
Bitcoin’s boosters say the currency’s design makes it impossible to counterfeit and difficult to manipulate. But it has struggled to shake off its associations with criminality, particularly its role in powering the now-defunct online drug marketplace Silk Road. Only last month, another member of the Bitcoin Foundation, Vice Chairman Charlie Shrem, was arrested at New York’s Kennedy Airport on charges of money laundering.
Authorities have been taking an increasingly hard look at bitcoin and related virtual currencies, including Litecoin, Namecoin, Ripple and countless others. Some countries, including Russia, have effectively banned the currency. In other jurisdictions, authorities are weighing whether to try to tame the marketplace through licenses or other mechanisms.
Even if Mt. Gox doesn’t drag bitcoin down with it, there’s fear that the exchange’s demise will push financial regulators to take an even more skeptical stance.
“I think this is disastrous from a (regulatory) standpoint,” Selkis said in a message posted to Twitter. “The hammer will now come down hard.”
I am a retired accountant & tax consultant now devoting much of my time to upgrading my own website, writing up my blog. I play sports on a weekly basis and is engaged in some voluntary work. I am also an amateur astronomer doing online research and quite proud of my research project. Details of my research in astronomy can be viewed on my website. Just click on any blog title ( in green colour ) or hit the link in my complete profile to access my website.
