Rats can teach humans some investing savvy

"In the experiment, researchers flash two lights, one green and one red, onto a screen. Four out of five times, it’s green; the other time, the red light flashes. But the exact sequence is kept random.

When rewarded for correct picks, rats and pigeons quickly discover the best strategy is to always pick green, guaranteeing an 80 percent correct-pick rate.

Humans, however, tried to anticipate when the red light would come on. This misguided strategy, on average, leads people to pick the next flash accurately only 68 percent of the time.

Stranger still, humans persist in this behavior even when researchers tell them the flashing lights are random. And while rodents and birds quickly learn how to maximize their score, people often perform worse the longer they try to figure it out.

Humans often see what they think are long-term trends but base their analysis on short-term data."

Americans' Wealth Jumps 3.8 Percent

"Thanks to a rebounding stock market, Americans' household wealth increased by $2.1 trillion last year, even as high unemployment and a sagging real estate market weighed down the economic recovery.

At the end of last year, American households saw their net worth rise 3.8 percent over the previous year to $56.8 trillion, according to figures released this week from the Federal Reserve."

The stock market hates dirty air

One of the main arguments against regulating air pollution is that the regulations hurt business. But, in an ironic twist, a new study suggests that the pollution itself hurts business where it arguably counts most: the stock market. Analyzing daily index returns from several stock exchanges over a 10-year period, the authors of the study found that stock returns were generally lower on days with poor air quality ratings in the vicinity of the stock exchange. The effect is significant: Trading stocks based on day-to-day air quality ratings might have allowed you to beat the annual return on the S&P 500 by several percentage points.
Levy, T. and Yagil, J., “Air Pollution and Stock Returns in the US,” Journal of Economic Psychology (forthcoming).

The myth of the small-town pol If your only view of reality came from political rhetoric, you couldn’t be blamed for thinking that most politicians come from small towns, a.k.a. the heartland. Guess again. According to a new analysis of gubernatorial and US Senate candidates from 1996 to 2006, most candidates were denizens of the most populated areas, in greater proportion than even that area’s share of the population. Republican nominees to the US Senate were even less likely than their Democratic counterparts to come from small towns. Meanwhile, state capitals were much more likely to produce candidates, especially for Democrats. This pattern raises the question of whether rural areas are fairly represented in our political system.

Gimpel, J. et al., “The Wellsprings of Candidate Emergence: Geographic Origins of Statewide Candidacies in the United States,” Political Geography (January 2011).

Does baseball scouting work? A key tenet of modern management is to recognize and promote talent early on. To do so, managers need metrics that reliably predict future performance. Given that sports like baseball are rife with metrics, it stands to reason that team managers must have already figured out the science of early recruiting. Yet, a new study of baseball pitchers by researchers at the University of Massachusetts Amherst finds that minor-league performance is actually not very predictive of major-league performance. Although performance at the higher levels of minor-league baseball is somewhat better at predicting major-league performance, it’s still a lot less predictive than major-league play itself. This suggests that organizations need to be even more careful with their human resources strategy. An average entry-level performer may become a star later on.

Longley, N. & Wong, G., “The Speed of Human Capital Formation in the Baseball Industry: The Information Value of Minor-League Performance in Predicting Major-League Performance,” Managerial and Decision Economics (forthcoming).

Bzzzt! You’re smarter When told to put your thinking cap on, wouldn’t it be nice if you could actually do that? Well, new research seems to deliver. People were asked to solve problems requiring analytical insight while a pair of saline-soaked sponge electrodes were placed on opposite sides of the scalp. A weak direct current flowed in one direction for some people, in the opposite direction for other people, and, as a control, no current was used for a third set of people. In one direction, the authors report, the electrical field produced a remarkable effect: “a three-fold increase in the likelihood of solving the problems. This is the strongest cognitive enhancement we are aware of for a brain stimulation study.” According to the authors, when the electrical field is applied with a certain polarity, it inhibits top-down thinking from the left hemisphere and stimulates bottom-up thinking from the right hemisphere.

Chi, R. and Snyder, A., “Facilitate Insight by Non-Invasive Brain Stimulation,” PLoS ONE (February 2011).

The leer effect It’s tempting to assume that the objectification of women is only a problem in the media, or that it doesn’t have much of an effect, or that women ignore it. Not so, according to a new study. Men and women were paired with someone of the opposite sex — who was actually working for the researchers — to compete as a team on a math test for money. The experiment was rigged so that some of the subjects were given several objectifying gazes — looking at the subject’s chest — and given feedback that made brief mention of their looks. Women, but not men, who were objectified in this way performed worse on the math test. However, these same women — but, again, not the men — were subsequently more interested in spending time with the other person.

Gervais, S. et al., “When What You See Is What You Get: The Consequences of the Objectifying Gaze for Women and Men,” Psychology of Women Quarterly (forthcoming). 

Pennsylvania budget calls for deep spending cuts

Another State with unprecedented fiscal problems.

Calling the state's fiscal problems unprecedented, Pennsylvania Gov. Tom Corbett unveiled Tuesday a budget that asks state employees to forgo pay increases and pay more for their health care.

The state is facing a budget gap of more than $4 billion, and its new governor is keeping his promise not to raise taxes to close it. Instead, he is looking for concessions from public employees and for cuts from a wide array of agencies. Also, some 1,500 positions would disappear in the budget that cuts overall spending by 3%.

"We have to spend less because we have less to spend," Corbett said. "We must tax no more because people have no more to give."

Secular Trend In Oil

The secular trend (message) in oil is up.

Dear CIGAs

This and other reasons amplify and solidify my call for $150+ oil in 2011.
monty.

Subject: From STRATFOR - Bahrain and the Battle Between Iran and Saudi Arabia...by George Friedman (good read)

By George Friedman
The world?s attention is focused on Libya, which is now in a state of civil war with the winner far from clear. While crucial for the Libyan people and of some significance to the world?s oil markets, in our view, Libya is not the most important event in the Arab world at the moment. Thedemonstrations in Bahrain are, in my view, far more significant in their implications for the region and potentially for the world. To understand this, we must place it in a strategic context.

As STRATFOR has been saying for quite a while, a decisive moment is approaching, with the United States currently slated to withdraw the last of its forces from Iraq by the end of the year. Indeed, we are already at a point where the composition of the 50,000 troops remaining in Iraq has shifted from combat troops to training and support personnel. As it stands now, even these will all be gone by Dec. 31, 2011, provided the United States does not negotiate an extended stay. Iraq still does not have a stable government. It also does not have a military and security apparatus able to enforce the will of the government (which is hardly of one mind on anything) on the country, much less defend the country from outside forces.

Filling the Vacuum in Iraq

The decision to withdraw creates a vacuum in Iraq, and the question of the wisdom of the original invasion is at this point moot. The Iranians previously have made clear that they intend to fill this vacuum with their own influence; doing so makes perfect sense from their point of view. Iran and Iraq fought a long and brutal war in the 1980s. With the collapse of the Soviet Union, Iran is now secure on all fronts save the western. Tehran?s primary national security imperative now is to prevent a strong government from emerging in Baghdad, and more important, a significant military force from emerging there. Iran never wants to fight another war with Iraq, making keeping Iraq permanently weak and fragmented in Tehran?s interest. The U.S. withdrawal from Iraq sets the stage for Iran to pursue this goal, profoundly changing the regional dynamic.

Iran has another, more challenging strategic interest, one it has had since Biblical times. That goal is to be the dominant power in the Persian Gulf.

For Tehran, this is both reasonable and attainable. Iran has the largest and most ideologically committed military of any state in the Persian Gulf region. Despite the apparent technological sophistication of the Gulf states? militaries, they are shells. Iran?s is not. In addition to being the leading military force in the Persian Gulf, Iran has 75 million people, giving it a larger population than all other Persian Gulf states combined.

Outside powers have prevented Iran from dominating the region since the fall of the Ottoman Empire, first the United Kingdom and then the United States, which consistently have supported the countries of the Arabian Peninsula. It was in the outsiders? interests to maintain a divided region, and therefore in their interests to block the most powerful country in the region from dominating even when the outsiders were allied with Iran.

With the U.S. withdrawal from Iraq, this strategy is being abandoned in the sense that the force needed to contain Iran is being withdrawn. The forces left in Kuwait and U.S air power might be able to limit a conventional Iranian attack. Still, the U.S. withdrawal leaves the Iranians with the most powerful military force in the region regardless of whether they acquire nuclear weapons. Indeed, in my view, the nuclear issue largely has been an Iranian diversion from the more fundamental issue, namely, the regional balance after the departure of the United States. By focusing on the nuclear issue, these other issues appeared subsidiary and have been largely ignored.

The U.S. withdrawal does not mean that the United States is powerless against Iran. It has been reconstituting a pre-positioned heavy brigade combat team set in Kuwait and has substantial air and naval assets in the region. It also can bring more forces back to the region if Iran is aggressive. But it takes at least several months for the United States to bring multidivisional forces into a theater and requires the kind of political will that will be severely lacking in the United States in the years ahead. It is not clear that the forces available on the ground could stop a determined Iranian thrust. In any case, Iraq will be free of American troops, allowing Iran to operate much more freely there.

And Iran does not need to change the balance of power in the region through the overt exercise of military force. Its covert capability, unchecked by American force, is significant. It can covertly support pro-Iranian forces in the region, destabilizing existing regimes. With the psychology of the Arab masses changing, as they are no longer afraid to challenge their rulers, Iran will enjoy an enhanced capacity to cause instability.

As important, the U.S. withdrawal will cause a profound shift in psychological perceptions of power in the region. Recognition of Iran?s relative power based on ground realities will force a very different political perception of Iran, and a desire to accommodate Tehran. The Iranians, who understand the weakness of their military?s logistics and air power, are pursuing a strategy of indirect approach. They are laying the foundation for power based on a perception of greater Iranian power and declining American and Saudi power.

Bahrain, the Test Case

Bahrain is the perfect example and test case. An island off the coast of Saudi Arabia, Bahrain and Saudi Arabia are linked by a causeway. For most purposes, Bahrain is part of Saudi Arabia. Unlike Saudi Arabia, it is not a major oil producer, but it is a banking center. It is also the home of the U.S. 5th Fleet, and has close ties to the United States. The majority of its population is Shia, but its government is Sunni and heavily linked to Saudi Arabia. The Shiite population has not fared as well economically as Shia in other countries in the region, and tensions between the government and the public have long existed.

The toppling of the government of Bahrain by a Shiite movement would potentially embolden Shia in Saudi Arabia, who live primarily in the oil-rich northeast near Bahrain. It also would weaken the U.S. military posture in the region. And it would demonstrate Iranian power.

If the Saudis intervened in Bahrain, the Iranians would have grounds to justify their own intervention, covert or overt. Iran might also use any violent Bahraini government suppression of demonstrators to justify more open intervention. In the meantime, the United States, which has about 1,500 military personnel plus embassy staff on the ground in Bahrain, would face the choice of reinforcing or pulling its troops out.

Certainly, there are internal processes under way in Bahrain that have nothing to do with Iran or foreign issues. But just as the internal dynamic of revolutions affects the international scene, the international scene affects the internal dynamic; observing just one of the two is not sufficient to understand what is going on.

The Iranians clearly have an interest in overthrowing the Bahraini regime. While the degree to which the Iranians are involved in the Bahraini unrest is unclear, they clearly have a great deal of influence over a cleric, Hassan Mushaima, who recently returned to Bahrain from London to participate in the protests. That said, the Bahraini government itself could be using the unrest to achieve its own political goals, much as the Egyptian military used the Egyptian uprising. Like all revolutions, events in Bahrain are enormously complex ? and in Bahrain?s case, the stakes are extremely high.

Unlike Libya, where the effects are primarily internal, the events in Bahrain clearly involve Saudi, Iranian and U.S. interests. Bahrain is also the point where the Iranians have their best chance, since it is both the most heavily Shiite nation and one where the Shiites have the most grievances. But the Iranians have other targets, which might be defined as any area adjoining Saudi Arabia with a substantial Shiite population and with American bases. This would include Oman, which the United States uses as a support facility; Qatar, headquarters of U.S. Central Command and home to Al Udeid Air Base; and Kuwait, the key logistical hub for Iraqi operations and with major army support, storage and port facilities. All three have experienced or are experiencing demonstrations. Logically, these are Iran?s first targets.

The largest target of all is, of course, Saudi Arabia. That is the heart of the Arabian Peninsula, and its destabilization would change the regional balance of power and the way the world works. Iran has never made a secret of its animosity toward Saudi Arabia, nor vice versa. Saudi Arabia could now be in a vise. There is massive instability in Yemen with potential to spill over into Saudi Arabia?s southern Ismaili-concentrated areas. The situation in Iraq is moving in the Iranians? favor. Successful regime changes in even one or two of the countries on the littoral of the Persian Gulf could generate massive internal fears regardless of what the Saudi Shia did and could lead to dissension in the royal family. It is not surprising, therefore, that the Saudis are moving aggressively against any sign of unrest among the Shia, arresting dozens who have indicated dissent. The Saudis clearly are uneasy in the extreme.

Iran?s Powerful Position

The Iranians would be delighted to cause regime change throughout the region, but that is not likely to occur, at least not everywhere in the region. They would be equally happy simply to cause massive instability in the region, however. With the United States withdrawing from Iraq, the Saudis represent the major supporter of Iraq?s Sunnis. With the Saudis diverted, this would ease the way for Iranian influence in Iraq. At that point, there would be three options: Turkey intervening broadly, something it is not eager to do; the United States reversing course and surging troops into the region to support tottering regimes, something for which there is no political appetite in the United States; and the United States accepting the changed regional balance of power.

Two processes are under way. The first is that Iran will be the single outside power with the most influence in Iraq, not unlimited and not unchallenged, but certainly the greatest. The second is that as the United States withdraws, Iran will be in a position to pursue its interests more decisively. Those interests divide into three parts:

1. eliminating foreign powers from the region to maximize Iranian power,

2. convincing Saudi Arabia and other countries in the region that they must reach an accommodation with Iran or face potentially dangerous consequences, and

3. a redefinition of the economics of oil in the Persian Gulf in favor of Iran, including Iranian participation in oil projects in other Persian Gulf countries and regional investment in Iranian energy development.

The events in the Persian Gulf are quite different from the events in North Africa, with much broader implications. Bahrain is the focal point of a struggle between Saudi Arabia and Iran for control of the western littoral of the Persian Gulf. If Iran is unable to capitalize on events in Bahrain, the place most favorable to it, the moment will pass. If Bahrain?s government falls, the door is opened to further actions. Whether Iran caused the rising in the first place is unclear and unimportant; it is certainly involved now, as are the Saudis.

The Iranians are in a powerful position whatever happens given the U.S. withdrawal from Iraq. Combine this with a series of regime changes, or simply destabilization on the border of Saudi Arabia, and two things happen. First, the Saudi regime would be in trouble and would have to negotiate some agreement with the Iranians ? and not an agreement the Saudis would like. Second, the U.S. basing position in the Persian Gulf would massively destabilize, making U.S. intervention in the region even more difficult.

The problem created by the U.S. leaving Iraq without having been able to install a strong, pro-American government remains the core issue. The instability in the Persian Gulf allows the Iranians a low-risk, high-reward parallel strategy that, if it works, could unhinge the balance of power in the entire region. The threat of an uprising in Iran appears minimal, with the Iranian government having no real difficulty crushing resistance. The resistance on the western shore of the Persian Gulf may be crushed or dissolved as well, in which case Iran would still retain its advantageous position in Iraq. But if the perfect storm presents itself, with Iran increasing its influence in Iraq and massive destabilization on the Arabian Peninsula, then the United States will face some extraordinarily difficult and dangerous choices, beginning with the question of how to resist Iran while keeping the price of oil manageable.

Jake Furlow
Institutional Equity Sales
Direct: (415) 229 - 1591
Toll free: (800) 421-0160
Fax; (310) 943-2174
AOL instant message: jfurlowjefco