“We don’t quite understand the world we live because of the degree of randomness,” began Nicholas Nassim Taleb today. That’s as far as he’s gotten. We’re in the British Columbia room at the Hotel Vancouver. The roster of speakers will make for a full afternoon, and your editor is poised and ready at the keyboard to record the events.
Meanwhile, Terry McCrann reports in The Age that BHP has become a cash juggernaut. “In simple but powerful terms, BHPB can look forward to getting higher prices for longer on ever increasing production. As cash starts to flow from all the new or expanded projects,” he writes. Thus the argument that’s been behind the revaluation of resource stocks.
“Markets make opinions,” quipped our friend Eric Fry. Eric isn’t buying the reasons being cited for the latest surge in resource blue chips. “The institutions have finally given up their skepticism of the resource market. How else to explain the 36% rise in BHP and XOM in the last three months….What happens once the institutions are all in?
No easy answers here. Aussie resource analysts now seem convinced that the demand from Asia is far stronger and more durable than anyone previously expected. Does this mean its time for a general revaluation of all resource stocks based on less volatile cash flows? Apparently.
Taleb is talking about Skinner’s experiments with chickens and how the human mind must always attribute causes to events. Causation is an inexact science, he says. We nearly always get it wrong. And we develop confidence in our observations when they are often founded on a small data sample.
“A black swan is a very large event that can’t be predicted… That is the problem with us humans…they underestimate the randomness in data…and that it often comes with a great shock.” A full report tomorrow.
Markets and Money