Say home prices have fallen 20% to date, and you expect them to fall another 10%. How much will they have fallen in total? A guest just now on CNBC just said, in passing, that would make for a 30% overall home price decline.

Oye. No it's not. If home prices fall 20%, and then fall another 10%, the second 10% is from a lower base price, not from the original price. As a result, the total percentage drop is less than the sum of the two figures, or 28% in total.

Granted, both price declines are large losses -- and don't even get me started on how useless these forecasts are, in the first place -- but that's not my point. It bugs me when people can't get basic math right, but still want us to trust them with their money-making ideas.

Emptying my burgeoning browser tabs of some things others may find interesting:

• Intelligence and stock trading performance: Whoa, dumber isn't better? (SSRN)
• Adobe launches online Photoshop (Adobe)
• Research Roundup: US Airline Industry (Research Roundup)
• Cramer Interviews Anadarko Petroleum CEO (TheStreet TV)
• So You Think You Have a Power Law — Well Isn't That Special? (Source)
• Heathrow's T5 opening hit by delays and protests (Bloomberg.com)
• Belief in BCE buyout wobbles over Clear Channel (Toronto Star)
• Walmart's growth over time as a video (Toby)
• Michael Lewis on Bear Stearns and brokers (Bloomberg)
• Too Dumb To Fail: Surowiecki on Bear Stears (The New Yorker)
• The death and life of the America newspaper (The New Yorker)

About a year ago I cited a study showing the weak -- okay, nonexistent -- connection between wealth and intelligence. Here is the key chart from that study:

Just this week, however,  I ran across a new, related study, one that comes to a different conclusion (sort of). The gist: In studying the trading performance of Finns (I know, I know) who had taken mandatory IQ tests the researchers found that higher IQ traders were better than lower IQ traders. In other words, smart people are better traders. Heresy!

Okay, okay -- there are lots of ways to become wealthy other than trading stocks, and trading stocks  isn't even a very good way to generate wealth, so this isn't a refutation, per se, of last year's result. But that said, my experience in the markets is that while there are many, many smart people, some of the people who struggle the most are high-IQ sorts, with a tendency to over-think trading decisions.

(Speaking of which, there is a great book on this subject called Why Smart People Make Big Money Mistakes. Definitely read it, if you haven't already.)

Food for thought, and here's the study's abstract:

Abstract:
This study analyzes the role that innate intelligence plays in investors‘ behavior and equity trading performance. Equity trading data are combined with data from an intelligence test administered to every Finnish male in the mandatory military service. We document two channels through which intelligence affects equity trading performance: high IQ investors exhibit superior stock-picking skills relative to low IQ investors and low IQ investors display poor trade execution: they pay too much for immediacy and poorly monitor their limit orders which generates excessive adverse selection costs. Innate intelligence remains a significant determinant of behavior and performance even after controlling for investors‘ trading activity.

You can't read a story, watch CNBC, or even hang out at Metafilter these without hearing endlessly about moral hazard. The idea, in essence, is that by preventing people from feeling the painful consequences of their errors you prevent them from learning, and thus they make the same mistake again, to their and (often) our cost.

The current context is subprime, the credit crisis, Bear Stearns, etc. Lots of people are alleging that by assisting in saving Bear Stearns, and by the Fed's and the government's aggressive actions in favor of mortgage holders, we are creating moral hazard. It's a useful discussion, but it's also important to put it in context: Pulling members of a Monopoly club off a train-track just before a train whizzes through creates moral hazard -- and it feels particularly bad if the someone now gets to put his hotel on Park Place after all -- but leaving them there to be sliced and diced, or causing the train to be derailed,  is almost certainly worse.

I keep wondering, with that in mind, about the consequences of all this chatter about "moral hazard". Because the trouble is, moral hazard exists many times we do anything to prevent someone from suffering, but that doesn't mean we shouldn't do it, nor does it mean we should moralize about moral hazard every darn time. You could easily imagine a reverse situation taking hold, one where we're so afraid of taking action, because of "moral hazard", that we're frozen into inaction when we should just be getting the f**k on with things. In a sense, moral hazard ends up creating a moral hazard problem.

Idle musings, but there is some interesting data on the subject available via Google Trends. Here is the upswing on searches for "moral hazard" on Google in the last four years. It's a moonshot.

In case you're wondering, most of the moral hazard searching at Google is coming from Singapore, Switzerland, Austria, Taiwan, and Germany. Damn moralizers. The U.S. is only 8th on the list.

I'm co-hosting CNBC's The Call on Tuesday from 11am to noon EST. If anyone has any pressing subjects that they think should be part of the hour, feel free to let me know.

And yes, my hair is out as a subject. Sorry.

Senator Chris Dodd (D.-CT), Chairman of the Senate Banking Committee, gave comments yesterday in an NPR interview on the Fed, regulation of investment banking, etc. that are well worth listening to. Check them here.

The gist: Dodd thinks more regulation of investment banks is coming, in particular because of their recent back-up by the Fed. Talk about a Hobbsian choice: Accept a deal from the Fed and be regulated, or go bust, in part because of Fed policies. Okay, okay, it's not that stark, but you know what I mean.

More reactions here.

The WSJ has a copy of Oaktree Capital's Howard Marks' latest letter to shareholders. Overall, it's about what you expect from Marks: smart and bearish stuff, with lots of data, some hard rights and uppercuts, and a general sense, of "Oooooh, what if he is right?"

Marks has a kind of stages of grief/denial view of capital markets. He argues we're still only in the second of three stages, and we may never get to the third, where investors are convinced that things can only get worse.

Fair enough, we're not in his third stage yet. And we may never get there, of course, much to his chagrin. Because he concludes, as most bears do, with this:

One of these days, though, we’ll reach the third stage, and the herd will give up on there being a solution. And unless the financial world really does end, we’re likely to encounter the investment opportunities of a lifetime. Major bottoms occur when everyone forgets that the tide also comes in. Those are the times we live for.

And that's the trouble with that sort of thing. All of the pointing to catastrophic sentiment collapse, despair, etc., that people like my friend Barry like to cite is true, and they do make great buying opportunities, but they only accompany major stock market bottoms, which occur maybe a few times a century.

If your entire trading model is built around only buying such "major market bottoms" you might get one/two buying opportunities in your career, and that's it. Granted, those are awesome times to buy, but they're so infrequent as to be nearly useless in the real world of capital markets. It does make for a nice story though.

Had interesting conversations today with a number of people about leverage in investing, and its role and value in future. The consensus: Leverage will carry a lower multiple going forward, with it important to determine the source of returns, and applying decreasing multiples depending on the degree to which leverage is a main cause.