Fuel efficiency kills?!?

The National Center for Public Policy Research, a conservative think tank, argues in a press release that the President’s call for higher fuel efficiency standards will have at least one unintended consequence–lighter weight vehicles will mean less accident protection for vehicle occupants, and thus a greater incidence of traffic injuries and fatalities. In the press release, a spokeswoman for the center invokes the polemical tag line from one of its studies: "CAFE standards kill".

We plucked this item for today’s blog for a few reasons. First, we love arguments that open with an eye catching bit of hyperbole. Second, we appreciate hyperbole that can be shown to have a few grains of truth to it. And third, this issue provides an opportunity for us to riff on a few of our favorite themes: complex economic tradeoffs, heavy political lifting, and human capital.

Taking the last one first, it’s our belief that the accumulation of physical, financial, and human capital in a society, coupled with declining fertility rates, raises the social value of the individual. [If this topic is of interest, one of the best ways to read up on it is via a web search for the long running arguments between biologist Paul Ehrlich and economist Julian Simon--just be sure to read a variety of perspectives--there are plenty of cheerleaders on each side, and the truth probably lies somewhere in between the overly pessimistic and optimistic positions they staked out, respectively.] On its surface then, the "CAFE standards kill" argument has some significance–if lighter vehicles lead to a greater number of fatalities, then society might indeed be worse off as a result of higher fuel efficiency.

There are several complicating wrinkles though, that have to do with the inescapability and complexity of economic tradeoffs–there are a significant number of externalities imposed by the production and consumption of fossil fuels, such as rigid or unstable political systems, the accumulation of harmful pollutants, etc, that negatively impact the lives of individuals and thus lower the total quantity and quality of human capital available. So while the occupants of a heavier motor vehicle might be better protected from acute trauma, they and others who are exposed to its waste, and those living in proximity to refineries, sea lanes, pipelines, and wellheads, might incur a marginally higher cost in terms of personal well-being. [Rest assured, I'm not arguing for a ban on cars or fossil fuels--my grandmother would sometimes argue that the world would be far better off without motor vehicles, but my father would soon pull me aside and point out that we would all have to wear thigh high gollashes and carry shovels if the horse and buggy ever made a comeback!] This analysis also leaves out the beneficial (negative) effects of employment (unemployment) in the various industries affected. From this, it should be plain to see that an objective estimation of the net cost or benefit of CAFE standards is extremely complicated and prone to error (it also serves as a reminder to dig into the philosophies and funding behind any studies that claim to offer easy and unassailable answers to thorny issues).

It’s in complicated issues like this that the heavy lifting of political processes comes into play. Despite their design flaws, execution challenges, and other imperfections, modern political systems are intended to produce socially optimal outcomes. Life is, after all, a series of optimization challenges–eat or sleep, work or play, date or marry, buy or rent, one kid or five, and so on. Likewise in politics, where appropriate weights must be placed on such things as growth versus equality, risk versus safety, incentives versus entitlements, etc. There are two things that we would love to see more of in the world of politics. First is a more explicit recognition and articulation of this reality in political discourse; second is a commitment to ensuring that ALL competing interests are fairly represented whenever optimization decisions are made. We admit this is speculative, but we believe that the ‘political middle’, which is so important to electoral politics in this country, understands the reality of tradeoffs and divergent interests. If so, the political process itself could probably use some optimization, for example, taking fuller advantage of ‘collective’ or ‘market’ intelligence (a good source for this is James Surowiecki’s The Wisdom of Crowds). For example, legislative and regulatory proposals could be subjected to more open competition and higher frequency electoral feedback, which might provide a healthy counterbalance to the influence of lobbyists and special interests…though at this point we have admittedly departed the realm of speculation and entered the land of wishful thinking…!!!

A Seamy Trifecta

Extending from our post on Arthur Levitt’s non-binding vote of shareholders, we stumbled across three issues today from which we can draw some interesting parallels between corporations, financial services, and governments.

Levitt’s preferred method of dealing with executive compensation–through direct, non-binding shareholder approval–raised the issues of governance and agency risk, a topic that is close to our hearts. It is possible in corporations for executives and directors (agents) to enrich themselves at the expense of shareholders (principals), and it can be very difficult to detect this kind of malfeasance. Our qualified objection to Levitt’s recommendation was based on a recognition that non-binding shareholder votes and tightly controlled director elections do not provide shareholders with adequate control over their agents. It’s clear that much of the principal-agency risk in publicly traded firms arises from the fact that shareholder’s assets are almost continuously at the disposal of executives and directors. It’s also clear that a relatively closed network of executives and directors–ie, a network where shareholders are largely absent from the relevant conversations–amplifies the risk of misconduct.

An announcement that Vanguard was issuing some new exchange traded funds with an annual expense ratio of .11% reminded us that in the realm of financial services, many investors incur ongoing costs that they may not understand or be aware of. Vanguard has played a key role in creating awareness around this issue and forcing the industry to improve its overall value proposition. Nonetheless, in segments of the financial industry where the value proposition is still tilted away from the customer, it seems clear to us that much of the principal-agency risk in these segments arises from the fact that customer/investor assets are continuously under the control (to varying degrees) of brokers, advisors, money managers, etc., and that a relatively closed and traditional culture–where customers/investors have little or no control over price setting and are not typically involved in relevant conversations around value–lessens the impetus for adding greater value relative to costs incurred.

Finally, this Sen. Tom Coburn interview in the current issue of GQ (which we learned of from Don Luskin) inspired the observation at hand. Quoting from the article:

[Senator Coburn] wants you to know how it works in Washington, how the machine keeps itself running, and the favors get traded, and the deals get struck, and the bridges to nowhere are going up every day. He wants you to know that the United States Congress simply cannot stop itself—that both parties are in on the fix, backing each other and looking the other way, and that in the spirit of bipartisan waste, they manage to blow $500 billion more than they collect in taxes every single year. He wants you to see where that money is going: the 10,000 personal projects and earmarks that senators and congressmen are sneaking into the federal budget every year…

To put it in terms of the two examples above, the federal government is a hotbed of principal-agent risk because of its near continuous control over public assets*, a culture where agents enable mutual self-dealing, and the exclusion of taxpayers/voters from the most relevant conversations around policy and appropriations.

[Two side notes to the Coburn article: (1) We are skeptical of those who decry our public debt based solely on its level--it's very difficult, perhaps impossible, to quantify, but U.S. debt must be assessed like any other--how does it compare to total U.S. assets, some measure of equity, or expected cash flows? And is said debt invested productively, that is, in ways that will add marginally to U.S. assets, equity, and cash flows in the future? (2) We disagree that the USD's position on forex markets is a de facto measure of overextension of federal budget deficits; Senator Coburn would have to reconcile the USD slide with current long term interest rates to make his case; in our view, the exchange value of the USD is driven primarily by Federal Reserve behavior.]

Getting back to the thrust of this post, we have illustrated two key factors that indicate the level of risk in any principal-agent relationship: the degree of agent control over principal assets, and the degree of self-reinforcing behavior among agents. That said, we have to wonder which of the three examples cited above poses the highest level and degree of agency risk overall, and how the three compare at present. Private actors like Vanguard have done wonders for improving the ‘terms of trade’ in the financial services industry; activist investors are increasingly flexing their muscle in publicly held corporations, and executives are subject to rules and penalties imposed by Sarbanes-Oxley; meanwhile, Senator Coburn considers himself something of a lone voice in the wilderness.

There’s a governance revolution afoot in the world. Beltway and other capital denizens should be careful to take notice.

*Imagine if, instead of having access to the cash flowing through the Treasury from debt issuance, payroll tax withholding, quarterly tax filings, and other sources, our Congressional representatives had to present their constitutents with strategic investment plans, detailed budgets, and compensation and benefit plans for approval, and then request the required tax contributions.

Levitt (Almost) Nails It

Former SEC chairman Arthur Levitt, in his regular feature on Bloomberg Television, nailed it on the issue of executive compensation currently before the Senate–almost. In the early 1990s, Congress passed a law that made executive salaries non-deductible above $1,000,000. The result was two-fold: a higher after-tax cost of executive compensation imposed on shareholders, and a significant expansion in the use of ‘non-cash’ compensation, such as stock options. The current proposal seeks to impose a cap on the deductibility of deferred executive compensation which, like options,has been an increasingly popular tactic for getting around the limited deductibility of cash compensation.

Levitt was appointed by President Clinton in 1993 and his political sympathies are clearly with the Democratic Party, so one might assume that he would be in favor of tightening up compensation controls–but that is apparently not the case. In his interview this morning, Levitt agreed with a judgement attributed to Senator Grassley that the current proposal to regulate deferred compensation is "stupid". Levitt then hit on the critical issue, which is who should have power over executive compensation, and he nailed it by (1) saying that it lies with shareholders, and (2) arguing that boards of directors and compensation committees should submit executive compensation plans to a vote of approval by shareholders.

We give Levitt a qualified "almost nailed it" because he argued that those votes should be non-binding. In our view, this would limit the beneficial impact of compensation votes: boards would still have the freedom to act in opposition to shareholders’ wishes, and given that the election of directors is still very tightly controlled in far too many corporations, boards and executives would be able to remain well insulated from the repercussions of their actions. Looking at this from another perspective, is it possible to make the actions of executives and directors ’non-binding’ upon shareholders? Of course not. Why then should executives and directors continue to be over-insulated from the desires of shareholders?

Wessel on Global Poverty

Interesting article from WSJ’s David Wessel on global poverty and  the challenges of global economic development. Wessel is writing specifically about concerns voiced by MIT economist Simon Johnson about the economic profession’s frustrating record in much of the world. Possible explanations cited are: (1) sound economic principles were applied but had unintended consequences, such as corruption, economic inefficiencies, and political asymmetries; (2) a learning process was required and has given rise to a consensus around the essentials of development, namely the accumulation of human, financial, and real capital in order to increase economic productivity; and (3) insufficient attention has been paid to the quality of domestic institutions:

A third view is that earlier economists focused on the wrong thing. Mr. Johnson, among others, argues that what really matters is having solid political, legal and economic institutions — courts, central banks, honest bureaucrats, private-property rights — that allow entrepreneurs to flourish. Imposing what seem to be sound economic policies on corrupt, incompetent or myopic governments is doomed. Building strong institutions is a necessary prerequisite. In this camp, there is a running side argument about which comes first: the institutions or the educated people who create them…

This version of the chicken and egg seems a tad myopic to us, as we would argue that institutions, markets, and productive factors (which would include "educated people") develop together over time in a reciprocal and dynamic fashion.

And while institutional economics is a rich and promising area of study, there are at least three areas that deserve special attention in our view. First is the impact of local tax structures (and other barriers to savings, investment, and entrepreneurship) on the domestic supply of human capital and the ability to save and invest. Second is the political economy of global capital-labor dynamics (see, for example, Dutt and Mitra’s study of how political ideology and trade policies vary, depending upon whether a country enjoys a surplus of capital or a surplus of labor). And third is the dynamic tension between modern institutions and traditional cultures (anyone with friends whose families emigrated from traditional cultures three or fewer generations ago has probably witnessed this dynamic up close; for an interesting narrative on how such tensions unfold abroad, see here).

¿Hugo Chavez Es Mas Macho?

IMPORTANT DISCLAIMER: The following is for informational and entertainment purposes only. It does not constitute in any way a recommendation or an offer to buy or sell any security, or to engage in any particular investment strategy. The clients or principals of Symmetry Capital Management, LLC may hold a long or short interest in any securities mentioned.  

Venezuela’s President (and president-for-life hopeful) Hugo Chavez caused his country’s capital markets to tank in a big way this week, by proposing to nationalize privately held assets in several strategic sectors of the Venezuelan economy. Some commentators have called this an act of lunacy, but we’re not so sure. Setting aside the man’s comedically brilliant theorizing — like the one about ancient extraterrestrial capitalists having raped the ecology of Mars long ago — we believe that if he’s dumb, he’s dumb like a fox. Chavez is essentially trying to diversify oil related revenues into other productive assets, increase control over how future revenues will be distributed, and strengthen his hold on power. Using the blunt instrument of government to ‘nationalize’ attractive assets at a steep discount to their intrinsic value is perfectly aligned with these strategic objectives. Unfortunately, over the long haul, his political shenanigans can only harm the future well being of Venezuelans, or at least those who are unable to escape, primarily because they will directly raise his country’s marginal cost of both human and financial capital (this claim is inspired by the work of our friend, economist Reuven Brenner; see, for example, http://www.cato.org/pubs/policy_report/v20n3/econgrowth.pdf).

Let’s look specifically at the case of Venezuelan telecomm CANTV, which involves something of a cross-border, mano y mano conflict, which we’ll bill by invoking the spirit of Bill Murray’s old SNL gameshow sketch, ¿Quien es mas macho? We’ll simply replace “Lloyd Bridges o Ricardo Montalban” with “Hugo Chavez o Carlos Slim”. Slim, a Mexican telecom magnate, recently offered to acquire a sizeable holding in CANTV at $21 per share. Apparently, something about this offer didn’t sit so well with El Commandante, and he decided to preempt the deal. Why?

• Economic necessity? The national portfolio of Venezuela continues to be concentrated in oil production, and the public coffers have benefited tremendously from the runup in crude prices and consumption. However, overall production capacity and output have suffered from government interference, and the government has taken on increasing financial leverage in recent years. Should crude prices fall to more normal levels, the country is likely to experience financial and social crises. By reaching for other strategic assets (see chart below), Chavez may be hoping to diversify government cash flows, and reduce their exposure to future oil price fluctuations. His desire to bring the Venezuelan central bank under state control may also be aimed at preventing an external financial crisis (though, like the other measures he’s enacting, it will cause more harm than good in the end).
• Socialist impulses? If we take him at his word, Chavez may believe that the Venezuelan government is able to acquire and manage strategic assets in a way that produces sufficient cash flows that can be invested for the benefit of the Venezuelan people, through education, health care, and other subsidies. Governments play an essential role in certain areas of public investment. However, they tend not to be effective managers of economic assets.
• Market manipulation? Put yourself in Carlos Slim’s shoes. A potential suitor for the shares of a public company is at the mercy of the market, and usually has to offer a premium to the prevailing market price in order to get a deal done. Now put yourself in Chavez’ shoes. You want to buy company X at a steep discount, and you have an incredibly blunt and effective weapon at your disposal — the power of a compliant national government. Simply threaten to nationalize certain industries and companies, and already high risk premia are suddenly doubled or even tripled (which is simply an inverse way of saying that an already depressed price falls another 50-70%). It’s not certain how much the government will eventually have to pay for publicly held assets, but it certainly gives him some negotiating leverage — a lot more than Slim or any other private suitor could generate through private networks. As Mel Brooks once quipped, “It’s good to be da king.”
• Power and greed? This is pure speculation at the moment, but it deserves investigation. What if economically meaningful ownership of these assets accrues to the politically connected, rather than the Venezuelan public? There is a longstanding tradition of elitism in the country, particularly in the area of resource and industrial management and administration. There is also a tendency for any unilateral government, regardless of its philosophical basis, to suffer from misallocation and misappropriation of capital. Chavez, who appears to be modelling himself as the next Fidel Castro, has set out some rather lofty personal ambitions for himself since being sworn in. While he appears to be successfully consolidating his power at the moment, such goals always have some cost attached to them. Viewed in that light, ownership of strategic assets could certainly be used to pay off critical allies, and thus maintain and expand power.

How this will all play out remains to be seen, but we suspect that all four of these possibilities are at work to some degree. However it turns out, we are highly confident in one aspect — that Chavez’ actions will continue to cost his country’s people dearly in terms of the improvements in living standards that accrue from economic and political dynamism. Chasing human and financial capital offshore and squelching internal dissent are all fine and good for Chavez and for those who benefit most immediately from his largesse. But for Venezuelan society at large, it’s a not-so-comic tragedy.

Whither the IMF?

A robust global economy isn’t good for everyone. Take the IMF, for example. Early repayments by certain debtor countries, downwardly revised estimates of the need for its services this year, and competition from the private market are taking a huge bite out of projected 2007 income. The tenor of the report seems to treat this as a challenge to year ahead revenues, but there’s some rather large-writ handwriting on the wall, we think. An institution born out of a long string of political disasters and resultant economic crises is bound to suffer as the global political economy has gradually returned to sounder footing. Is this merely a cyclical downswing, driven in part by global liquidity and economic activity? Or is this a dinosaur institution being forced to contemplate its fate?

We tend to think it’s the latter, but we’ll throw on a hedge, and toss in a caveat. Our hedge is that if large central banks push real interest rates to an extreme, the IMF’s services will be back in demand (though we’re not sure that their charter will allow them to bail out over leveraged U.S. consumers and homeowners…). The caveat we’ll offer is supported by basic supply and demand, and by more interesting areas such as institutional economics and power relationships: the IMF is likely to remain the lender of last resort to the most extreme basket case countries, i.e., those that have screwed up their public policies – and domestic economies – royally. There aren’t a whole lot of these countries in the world, but those that fit the description will be forced to pay a relatively hefty fee for the IMF’s services, especially if we assume that private sector alternatives will be unwilling to step into these more extreme situations.

You can peruse the full report here: http://www.imf.org/external/NP/pp/eng/2006/120706.pdf

A Couple of Trinities

Trinity #1 – CFO.com carried an interesting article from The Economist on Thailand’s recent bungling with capital controls, a problem related to the ”impossible trinity” of domestic liquidity, exchange rates, and capital accounts. We’re not so much interested in the trinity or the theory behind it as in this tidbit — the authors correctly point out that, although this episode might have reminded the markets of the currency crises associated with the ‘Asian Flu’ in 1997, it’s actually quite different [diametrically opposed, in our view]. Where the 1997 crisis was marked by capital outflows, the current challenge facing emerging Asian economies is one of capital inflows, a symptom of the so-called ‘savings glut’ theorized by some economists in recent years. I suspect that many non-theorists would be curious to know how the world could go from a shortage of savings to a glut of savings in such a short span of time, given that we tend to think of ‘savings’ as a reserve of wealth accumulated over long periods of time. The answer actually has to do with the money creation process, which is controlled largely by the U.S. Federal Reserve, and how this process influences the use of existing assets. Rather than delve into the theory behind it, we’ll just offer this pithy rule of thumb: when Federal Reserve policy supports a high real rate of interest, the demand for savings rises, pushing up the marginal cost of investment capital; while a low real interest rate dampens the demand for savings, thus lowering the cost of capital available for investment. From roughly 1996 to 2002 (ignoring the runup to Y2K), the Fed enacted policy that tended to raise the real rate of interest, and ended up causing all kinds of trouble globally, as capital became scarce: Asia in 1997, Russia in 1998, Argentina in 2001, and finally the U.S., starting with commodity and cyclical industries in the first half of the period, and ending with the infamous corporate debacles and bear market slides of the period. Since 2003, the Fed has kept the real rate of interest historically low, thus encouraging a ‘glut’ of savings available for investment globally. The recent episode in Thailand merely shows that both extremes (too tight or too loose) have global consequences.

Trinity #2 — Another Economist story carried on CFO.com discusses the ‘misaligned triangle’ between public companies, private equity, and investment managers, as articulated by Morgan Stanley strategist Henry McVey. The basic thesis is that long term investment by publicly traded firms is falling short of the level required to ensure long term profitability, because: (A) the executives of public companies are tending to hoard cash as a reserve for hedging against regulatory risk and for buying back stock in order to boost earnings per share and thus maximize expected compensation; (B) private equity firms are often attracted to firms with cash on the balance sheet, but rather than putting that cash to work in long term investments, their interest is typically in maximizing short to intermediate term cash flows, which naturally precludes capex; and (C) rather than fighting for the cash reserves that public shareholders are entitled to, many fund managers instead accept the performance pop their portfolio receives whenever a private equity bid is at a significant premium to market (or more precisely, to carry value). This is a great example of agency theory in action, and leads us to take a rather interesting long view: in coming decades, more and more of the heavy lifting related to investment will be carried out by closely held private firms (or consortiums of such firms), while larger pools of capital will take over an increasing share of financing such investments. In fact, we can think of several current examples that might mark the beginning of such a trend, and thus lend support to the hypothesis. The long term impacts on markets, investors, businesses, and governments could get very interesting.

Economic Development in Africa

We just came across this November 2006 article by our friend Mike Churchill, on the ‘changing zeitgeist’ of economic development in Africa. Good stuff.

Executive Wake Up Calls

The first week of the new year has already offered two wake up calls for the denizens of American executive suites: a high profile CEO resignation, and a new survey finding that fewer than half of U.S. workers express trust and confidence in their senior management.

The quality and effectiveness of business leadership has always been a source of popular intrigue. Turn on any business channel, open any major newspaper, peruse any best seller list, and you’re almost certain to find people talking or writing about the topic. Business leaders provide fodder for conspiracy theorists, incomes for consultants, and data points for academic theorists. And yet despite all of the attention, truly effective leadership seems to be in chronically short supply.

Bob Nardelli’s departure from Home Depot this week is the latest high profile leadership failure, and of the two news items under discussion here, this is the one that most executives have probably been attentive to. By itself, this incident only tells us that a sufficient percentage of Home Depot’s shareholders and board members were unhappy enough with Nardelli’s leadership to call for his resignation — it is not a conclusive piece of evidence for poor executive leadership in general. In fact, we suspect that in many executive suites, the incident is being rationalized in this way. However, in order to prevent its more widely applicable lessons from going unheeded, we want to highlight a few datapoints from a recent Wyatt Watson survey, revealing that at least one critically important group of stakeholders — employees — believe that subpar leadership abounds in the U.S. business world.

While the survey’s press release emphasized trends in various ratings since the 2004 survey, the maximum reported variance between the two was only 4%. What grabbed our attention instead were the dismal absolute numbers in categories that are intrinisic to leadership. Using averages of the 2004 and 2006 surveys, we see that:

• Only 50% of senior managers have won the trust and confidence of their employees;
• Only 56% of senior managers are seen as embodying their company’s core values; and
• Only 44% of senior managers are seen as active, visible communicators.

The fact that these categories have declined since 2004 just heaps insult on injury. Without pulling punches, we’ll call this what it is: PATHETIC!!! Our aim isn’t to engage in a pointless blame-placing exercise, but rather to call attention to an extremely suboptimal situation in the world of American business.

When we analyze a company, one of the areas we’re very attentive to is the ‘soft stuff’ — organizational culture, leadership effectiveness, employee involvement, etc. Employees are an increasingly critical constituency for most executives, and employees can offer valuable perspectives and feedback on senior management’s effectiveness. The overwhelming takeaway that we’re hearing in the Wyatt Watson survey is that business leaders need to take heed of the shortcomings articulated by employees, and invest some serious time and effort in developing capacities – their own and their organizations’ – for effective leadership.

To skeptics and cynics, we would point out the following. From a bottom up perspective, it’s true that these kinds of investments do not show up directly on the asset side of the balance sheet, and they are likely to have a negative impact on income statements in the short run. However, we have little doubt that in most cases, the long term health of a balance sheet depends significantly on making these kinds of investments. From a top down perspective, we admit that an economy where only half of the labor force is confident in its leaders and engaged in its mission may be sufficient, but is it optimal? Consider instead the same economy where 75% of the labor force is fully engaged. Is "staggering" a fair description of the potential benefits that would accrue to society? We think so.

Market Moons

CFO.com recently cited a very interesting study — using a rather exhaustive data set, researchers Ilia Dichev and Troy Janes found a significant correlation between lunar cycles and stock market returns! While they claim that their findings are insufficient for developing a trading strategy, they still provide an opportunity for speculation of the intellectual sort, on causative mechanisms or possible sources of spurious correlation. Could human behaviors be influenced by natural phenomena that are assumed to have no direct or discernible (much less measurable) impact on people?

Whatever the eventual answer, the study raises the ghost of classical English economist Stanley Jevons, and perhaps dusts off his marginalized (pun intended, econo-nerds!) sunspot theory of the business cycle. The following description is excerpted from the Jevons profile at CEPA New School’s HET website:

In 1875 and 1878, Jevons read two papers before the British Association which expounded his famous "sunspot theory" of the business cycle. Digging through mountains of statistics of economic and meteorological data, Jevons argued that there was a connection between the timing of commercial crises and the solar cycle. The basic chain of events was that variations in sunspots affect the power of the sun’s rays, influencing the bountifulness of harvests and thus the price of corn which, in turn, affected business confidence and gave rise to commercial crises. Jevons changed his story several times (e.g. he replaced his European harvest-price-crisis logic with an Indian harvest-imports-crisis channel). However flimsy his explanations, Jevons believed that the periodicity of the solar cycle and commercial crises — approximately 10.5 years, by his calculations — was too coincidental to be dismissed.

To this day, Jevons’ sunspot theory tends to elicit snorts of derision from educated sorts, but as an explanation for business cycles in closed agrarian economies, it strikes me as a fairly reasonable conjecture. Explaining Dichev and Janes’ lunar cycle finding seems a lot trickier, but fun, so here’s an initial stab: the additional light available around full moons encourages a greater degree of nocturnal behavior, which leads to a larger number of traders nursing hangovers, and thus inspires a marginally higher level of pessimism in the stock market on those days…

Hey, we’re reaching, but at least we’re not snorting.

Happy 2007!!!