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What Oil’s Troubles Mean to the Rest of Us
To the extent that stock prices reflect expectations of future value, investors don’t like the prospects for oil, and oil’s demise signals muted prospects for economic growth.
Exxon-Mobil (XOM) was removed from the Dow Jones Industrial Average this past August, ending a run that began when the Dow expanded to 30 stocks in 1928. This leaves Chevron as the sole oil company in the index. For most of those 92 years, there were three oil majors in the Index (Standard of NJ/Exxon, Texaco, and Standard of CA/Chevron) – now there is one. Should you care?
In one sense, no. The Dow is an actively-managed index, and 11 of the current 30 firms have replaced other names since 2000. (Exxon-Mobil was replaced by Salesforce.) The financial media treats changes in the Dow as measures of overall market levels, but little money is actually invested in DJIA-linked products. There’s an interesting article in all that, but it’s not this one.
On the other hand, the Dow committee likes to include industries and companies that are growing and successful. Removing XOM is a measure of the decline of the economic status of “big oil.” Over the last two months, both XOM and BP have approached their lows from this past March, which were in turn the lowest prices for those stocks since 1994 (BP) or 1997 (XOM). The S&P 500 has grown by a factor of four since 1997.
The WTI price of oil is (as of October 2020) around $40 per barrel, which is the lowest since 2003 on an inflation-adjusted basis except for a brief period at the start of 2016 and a few weeks this spring. This reflects the abundance of oil supplies after the COVID-induced demand collapse, but it also is a price below what’s necessary to operate much of the industry profitably…
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Niall Ferguson: The Destructive Power of Social Networks
The conventional wisdom promoted by the developers of social networks was that they would provide immense benefits to society through faster and broader connectivity. That view was shattered by Niall Ferguson, who called services like Facebook and Twitter “crazy ideas gone viral, with deeply negative implications.”
Ferguson is a historian and teaches at Stanford. His views are generally regarded as politically conservative and he has often taken positions that specifically oppose those of the New York Times columnist Paul Krugman. He was the evening keynote speaker at the Schwab IMPACT conference yesterday in Washington, D.C.
Speaking from a historical perspectives, Ferguson said that human history has been dominated by the tension between social networks and hierarchies of all kinds. Indeed, that is the central theme of his most recent book, The Square and the Tower: Networks and Power, from the Freemasons to Facebook, which is available from the link on this page.
“The idea was that everything would be awesome if we are all connected,” Ferguson said, in regard not just to modern social networks, but to inventions such as the printing press.
“But that is a deeply suspect idea,” he said.
Giant social networks, like Facebook and Twitter, do not form an online social community. Instead, a large social network will “self-segregate” into opposing clusters, according to Ferguson. In the realm of politics, social networks have gravitated to become platforms for those with strongly held liberal and conservative views, with far fewer members offering centrist opinions.
A historical perspective
Ferguson said that the phenomenon of polarization was predictable, when one considers similar historical events.
To understand our time, he said, you must go back 500 years to the early 16th century, when the printing press became widely available. It allowed a greater volume of content to be produced and disseminated with a lower cost of communication.
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Why Nassim Taleb Thinks Leaders Make Poor Decisions
Why Nassim Taleb Thinks Leaders Make Poor Decisions
Why do experts, CEOs, politicians, and other apparently highly capable people make such terrible decisions so often? Is because they’re ill-intentioned? Or because, despite appearances, they’re actually stupid? Nassim Nicholas Taleb, philosopher, businessman, perpetual troublemaker, and author of, among other works, the groundbreaking Fooled by Randomness, says it’s neither.
It’s because these authorities face the wrong incentives.
They are rewarded according to whether they look good to their superiors, not according to whether they are effective. They have no skin in the game.
Seasoned readers of Taleb will be pleased to see the so-called “experts problem” pop up in living color in Skin in the Game: Hidden Asymmetries in Daily Life, Taleb’s latest collection of essays on risk, rationality, and randomness. According to Taleb, dentists, pilots, plumbers, structural engineers, and “scholars of Portuguese irregular verbs” are real experts; sociologists, policy analysts, “management theorist[s], publishing executive[s], and macroeconomist[s]” are not.
The difference is that, when people from the first list are wrong about something, it’s obvious from the results and they suffer; they have skin in the game. Bad teeth, crashed planes, and leaky pipes are bad for business. People from the second list rationalize by substituting a different theory. They were not really wrong but just early, and, if they’re lucky, which is to say skillful at apple-polishing, earn promotion after promotion by not failing utterly. (Financial advisors can argue that the fiduciary standard is the most powerful tool for putting them in the first list.) Skin in the Game is full of insights like this, some recycled from his earlier work but many of them new. It is well worth the relatively quick read.
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