Wednesday, May 22, 2013
From Eurostat via Early Warning:
Market Reacts As Bernanke Promises "MOAR"
Euphoria Cracks As Ben Drops Hint Of Tapering After All
MOAR Orderly... oops... Bernanke: "Fed could reduce bond purchases in the next few meetings if data supports it" and perhaps most disturbing is that reality is finally seeping into the corner offices of the Marriner Eccles building when Bernanke says that concerns about "frothiness" and "bubbles" has increased? Was it the sub-5% yield in high yield that tipped them off?
From the Google Research blog:
Posted by Hartmut Neven, Director of Engineering
We believe quantum computing may help solve some of the most challenging computer science problems, particularly in machine learning. Machine learning is all about building better models of the world to make more accurate predictions. If we want to cure diseases, we need better models of how they develop. If we want to create effective environmental policies, we need better models of what’s happening to our climate. And if we want to build a more useful search engine, we need to better understand spoken questions and what’s on the web so you get the best answer.HT: Steve Jurvetson's flickr:
So today we’re launching the Quantum Artificial Intelligence Lab. NASA’s Ames Research Center will host the lab, which will house a quantum computer from D-Wave Systems, and the USRA (Universities Space Research Association) will invite researchers from around the world to share time on it. Our goal: to study how quantum computing might advance machine learning.
Machine learning is highly difficult. It’s what mathematicians call an “NP-hard” problem. That’s because building a good model is really a creative act. As an analogy, consider what it takes to architect a house. You’re balancing lots of constraints -- budget, usage requirements, space limitations, etc. -- but still trying to create the most beautiful house you can. A creative architect will find a great solution. Mathematically speaking the architect is solving an optimization problem and creativity can be thought of as the ability to come up with a good solution given an objective and constraints...MORE
In the D-Wave Board meeting in Canada this morning. Today's news: Google buys a quantum computer for machine learning and artificial intelligence: "We actually think quantum machine learning may provide the most creative problem-solving process under the known laws of physics. " — Google BlogUltimate HT: Next Big Future who we'll be returning to this afternoon.
This is an interesting development in a larger trend I call Deus Ex Machina — machine learning innervates everything.
Under the covers, just about every new research initiative at Google is driven by machine learning — whereby the machine learns patterns in the data without explicit models or traditional solution design. It’s what makes “Big Data” BIG this time around. The approach requires a humble relaxation of the presumption of control, and so it starts with companies like Google and eventually revolutionizes all businesses, even those with a delusion of control, like Investment bankers. =)As a precondition to purchase, Google gave the company a number of performance benchmarks to prove that the quantum computer is faster than anything Google has in house. The NYT reports:
“For most problems, it was 11,000 times faster, but in the more difficult 50 percent, it was 33,000 times faster. In the top 25 percent, it was 50,000 times faster.”...MORE
Previously on D-Wave:
Does Lockheed Have a Quantum Computer or Doesn't It? (LK)
"The CIA and Jeff Bezos Bet on Quantum Computing" (AMZN)
Quantum Computing: CIA and Bezos Invest in D-Wave Systems Inc.
And on the Quantum:
"Does probability come from quantum physics?"
"Hacking the Quantum: A New Book Explains How Anyone Can Become an Amateur Quantum Physicist"
Quantum Physicists Disagree on the Nature of Reality
Multiple Steps Toward the 'Quantum Singularity'
From Physics Today:
Chaos at fifty
In 1963 an MIT meteorologist revealed deterministic predictability to be an illusion and gave birth to a field that still thrives.
In classical physics, one is taught that given the initial state of a system, all of its future states can be calculated. In the celebrated words of Pierre Simon Laplace, “An intelligence which could comprehend all the forces by which nature is animated and the respective situation of the beings who compose it—an intelligence sufficiently vast to submit these data to analysis . . . for it, nothing would be uncertain and the future, as the past, would be present to its eyes.”1 Or, put another way, the clockwork universe holds true.
Herein lies the rub: Exact knowledge of a real-world initial state is never possible—the adviser can always demand a few more digits of experimental precision from the student, but the result will never be exact. Still, until the 19th century, the tacit assumption had always been that approximate knowledge of the initial state implies approximate knowledge of the final state. Given their success describing the motion of the planets, comets, and stars and the dynamics of countless other systems, physicists had little reason to assume otherwise.Starting in the 19th century, however, and culminating with a 1963 paper by MIT meteorologist Edward Lorenz, pictured in figure 1a, a series of developments revealed that the notion of deterministic predictability, although appealingly intuitive, is in practice false for most systems. Small uncertainties in an initial state can indeed become large errors in a final one. Even simple systems for which all forces are known can behave unpredictably. Determinism, surprisingly enough, does not preclude chaos.A gallery of monsters
Chaos theory, as we know it today,2 took shape mostly during the last quarter of the 20th century. But researchers had experienced close encounters with the phenomenon as early as the late 1880s, beginning with Henri Poincaré’s studies of the three-body problem in celestial mechanics. Poincaré observed that in such systems “it may happen that small differences in the initial conditions produce very great ones in the final phenomena. . . . Prediction becomes impossible.”3Dynamical systems like the three-body system studied by Poincaré are best described in phase space, in which dimensions correspond to the dynamical variables, such as position and momentum, that allow the system to be described by a set of first-order ordinary differential equations. The prevailing view had long been that, left alone, a conventional classical system will eventually settle toward either a steady state, described by a point in phase space; a periodic state, described by a closed loop; or a quasi-periodic state, which exhibits n > 1 incommensurable periodic modes and is described by an n-dimensional torus in phase space....MORE
We haven't looked at Wealth-X in over a year but they seem to be entrenching themselves in their niche, getting quoted in major media and making the report more and more user friendly.
Here's the Telegraph:
Oxford 'has highest number of rich graduates'
Britain's most high-profile universities are more often pitted against each other in the annual rowing clash or league tables charting their academic prowess. But a new league table compares the seats of learning on the number of rich graduates they have produced.
According to research by Wealth-X, Oxford numbers 401 "ultra high net worth" individuals among its alumni population and together they have a total net worth of $51bn (£33bn). Each individual has an average net worth of $127m.
Ultra High Net Worth by locationAn ultra high net worth individual is classed as having a net worth of at least $30m after accounting for shares in public and private companies, residential and investment properties, art collections, aircraft, cash and other assets...MORE
Here's the report.
It was in 2005 that I first started hearing normally sober and reliable people discuss the economy in terms that, loosely translated, said: Everyone will make their fortune by swapping real estate and selling each other "Tall half-skinny half-1 percent extra hot split quad shot lattes with whip"*
FutureLawyer has discovered a magazine for coffee lovers. So has Nicholas Bate, a serious coffee lover and author of Ristretto Espresso 09.
This is further proof that there is a magazine for any subject nowadays. Some examples:
Is the Future of Food Artisanal?
The Future Will be Artisanal Everything (HAIN; AHFP)
"The Economics of Artisanal Chocolate" (Here at Zero-bound Chocolates, We Believe...)
And as far as specialist publications go it's hard to top "Modern Drunkard Magazine".
Europe’s plan to decarbonise its economy by 2050 could be turned on its head at a summit today (22 May) if EU heads of state and government sign off on measures prioritising industrial competitiveness over climate change in draft conclusions seen by EurActiv.
The draft text says that EU policy must ensure “competitive” energy prices, and declares it “crucial” that Europe diversify its energy supply and develop “indigenous energy resources” – a reference to renewable energies, but also coal, nuclear power and shale gas.
One high-profile German MEP Holger Krahmer (ALDE), hailed the end of “climate hysteria” in a jubilant press statement.
“For the first time, rising energy costs and the declining competitiveness of the European economy will be rated higher than obviously unenforceable global climate change ambitions,” he said.
“The economic and social consequences of collective hysteria can no longer be ignored, as the governments of the EU member states admit in this paper,” Krahmer added, saying that it was right to give more attention to energy sources such as gas and coal.
The draft summit conclusions also pledge to review the causes and nature of Europe’s energy price costs by the end of the year, and look more closely at industrial competitiveness.
Luxembourg MEP Claude Turmes (Greens) branded the document “appalling” in its entirety and a “dramatic setback” for environmentalists.
The shift in emphasis by European leaders follows the rejection of a proposed reform of the EU's depressed Emissions Trading System (ETS), pushed by the Climate Commissioner Connie Hedegaard, which sought to boost CO2 prices.
The measure had been heavily resisted by energy-intensive industries and the business employers’ federation, BusinessEurope, which argued against artificially raising carbon prices – and therefore energy costs – in a slow economy....MORE
Tuesday, May 21, 2013
Alphaville's The Closer post links to the Aleph blog:
The foolish do the best in a strong market
“The trend is your friend, until the bend at the end.” So the saying goes for those that blindly follow momentum. The same is true for some amateur investors that run concentrated portfolios, and happen to get it right for a while, until the cycle plays out and they didn’t have a second idea to jump to.
In a strong bull market, if you knew it was a strong bull market, you would want to take as much risk as you can, assuming you can escape the next bear market which is usually faster and more vicious. (That post deserves updating.)
Here are four examples, two each from stocks and bonds:
- In 1998-2000, tech and internet stocks were the only place to be. Even my cousins invested in them and lost their shirts. People looked at me as an idiot as I criticized the mania. Buffett looked like a dope as well because he could not see how the enterprises could generate free cash reliably at any intermediate time span.
- In 2003-2007, there were 3 places to be — owning homebuilders, owning depositary financials or shadow banks, and buying residential real estate directly. This was not, “Buy what you know,” but “Buy what you assume.”...
...I could go on about:
The go-go years of the ’60s or the ’20s
The various times the REIT market has crashed
The various times that technology stocks have wiped out
And more, like railroads in the late 1800s, or the money lost on aviation stocks, if you leave out Southwest, but you get the point, I hope....MORE
From our March 2012 post "'Transports, Small Caps Hit New Highs' (Quick! Hire a kid!)":
There's an interesting dichotomy developing in the markets, one that we've seen before.
The old pros are cautious, befuddled and a bit scared. Folks with less than a decade at the market are making money.
Adam Smith noted it in the 'sixties bull market (The Money Game):
There is one wonderful chapter where the consummate pragmatic speculator, the Great Winfield, is lamenting his performance problems in a wildly speculative bull market.
“My boy,” said the Great Winfield over the phone. “Our trouble is that we are too old for this market. The best players in this kind of a market have not passed their twenty-ninth birthdays. Come on over and I will show you my solution.”
So Adam Smith goes over and finds three new faces in the Great Winfield’s office.
My solution to the current market,” the Great Winfield said. “Kids. This is a kids’ market. This is Billy the Kid, Johnny the Kid, and Sheldon the Kid.” The three Kids stood up without taking their eyes from the moving tape, shook hands, and called me “sir” respectfully.
“Aren’t they cute?” the Great Winfield asked. “Aren’t they fuzzy? Look at them, like teddy bears. It’s their market. I have taken them on for the duration.”
Winfield then describes how much money Billy the Kid is making in computer leasing stocks like Leasco Data Processing and Randolph Computer that he has heavily leveraged with bank borrowing....And the really spooky bit, for me anyway, SHALE:
...Sheldon the Kid waved his hand for recognition.
“This one will really take you back,” said the Great Winfield. “Sheldon’s Western Oil Shale has gone from three to thirty.”
“Sir!” said Sheldon. “The Western United States is sitting on a pool of oil five times as big as all the known reserves in the world – shale oil. Technology is coming along fast. When it comes, Equity Oil can earn seven hundred and fifty dollars a share.
It’s selling at twenty-four dollars. The first commercial underground nuclear test is coming up. The possibilities are so big no one can comprehend them.”
“Shale oil! Shale oil!” said the Great Winfield. “Takes you way back, doesn’t it. I bet you can barely remember it.”
“The shale oil play,” I said dreaming. “My old MG TC. A blond girl, tan from the summer sun, in the Hamptons, beer on the beach, ‘Unchained Melody,’ the little bar in the Village.”
“See? See?” said the Great Winfield. “The flow of the seasons. Life begins again. It’s marvelous. It’s like having a son! My boys! My Kids!”
The Great Winfield had made his point. Memory can get in the way of such a jolly market, that malaise that comes with the instantly gone, flickering feeling of déjà vu. We have all been here before.
“The strength of my kids is that they are too young to remember anything bad, and they are making so much money they feel invincible,” said the Great Winfield.
“Now you know and I know that one day the orchestra will stop playing and the wind will rattle through the broken window panes, and the anticipation of this freezes us. All of these kids but one will be broke, and that one will be the multi-millionaire, the Arthur Rock of the new generation. There is always one, and maybe we will find him.”...
Too Funny: "Risk of vicious circle for gold as hedging returns" (Petropavlovsk sells forward 55% of Q2 2014 production)
Note the highlighted bit.
From the Telegraph:
The curse of hedging that blighted gold in the 1990s is making a comeback, and threatens to loom over the market like Banquo's ghost.
London-listed gold producer Petropavlovsk has said it will pre-sell 55pc of its future output planned for the second quarter of 2014, at an average price of $1,408 an ounce. This is the first time that a big producer has hedged more than half its future sales.
“We have a huge investment programme and thought a little price protection in the short-term will let us sleep better at night,” said chairman Peter Hambro.
Tyler Broda from Nomura said this may signal the return of “structural hedging” across the industry, with other companies scrambling to lock in forward contracts. “This could increase the pressure on the spot gold price over the coming years,” he said. The risk is a vicious circle as hedging leads to lower prices, leading to more hedging.
The process pushed gold down to $252 an ounce in 2009, though there were many other forces at work, including sales by the Bank of England and other Western central banks.Here's the intro to a post on his kid last month:
“It was hedging that killed gold prices the 1990s,” said Ross Norman from Sharps Pixley. “Every time there was rally, the producers seized on the chance to sell forward. It was most unhelpful.”...MORE
"BlackRock’s Hambro: We Bought Gold"
According to CityWire's Wealth Manager Evy Hambro is a so-so manager, losing less than average in gold stocks and more than average in other natural resource issues.Or not.
On the other hand his dad is the Peter Hambro and his former boss at BlackRock is Graham Birch who quit BLK to run his dairy farm before getting bored and joining père at Petropavlovsk plc, i.e. Evy can probably get some decent thinking on the gold biz....MORE
At least not if papa is trying to offload some product.
Third Avenue - 'The Impact of Higher Interest Rates on Real Estate (When and If It Happens)' And Farmland, What About Farmland?
Speaking of convexity and duration...
(well not exactly but it's the same rates up/price down teeter-totter)
By The Third Avenue Real Estate Value TeamSee also today's Financial Times:
Excerpted From the Third Avenue Real Estate Value Fund First Quarter 2013 Shareholder Letter
A frequently asked question and topic of discussion among Third Avenue Management investment professionals is what impact rising interest rates would have on our investments and our portfolios in general. While trying to tackle this topic, as it relates to global real estate, in a single essay is a daunting task, we will attempt to explain our view on how rising interest rates might impact the global real estate markets and how some types of companies might perform in such an environment. In short, it is our view that rising interest rates would likely create some volatility in the short term (which is the friend of the value investor); but, over the long term (which is where our focus ultimately lies), could ultimately benefit certain types of companies.
The big question: How will rising interest rates impact real estate values? Our answer: It depends. In fact, the impact on property values will vary greatly depending on (i) why interest rates are rising and (ii) what type of property one is talking about. If long-term interest rates spike materially due to some sort of economic crisis (e.g., a U.S. Treasury default), we have no specific opinion on the impact to real estate values (other than "it will probably be bad for most investments, real estate or otherwise – but, at least we own hard assets"). However, in a scenario where more vibrant economic growth in the U.S. leads to a falling unemployment rate, the Fed has explicitly stated it will increase short-term rates and is likely to take its foot off the gas as it relates to buying on the long-end of the curve. A vibrant economy and rising employment will likely be inflationary, leading to higher interest rates.
Commercial properties (retail, office, apartments, industrial, etc.) are primarily valued based on applying cap rates (i.e. initial yields) to property cash flows. Cap rates have historically been highly correlated to long-term interest rates, with the highest correlation being Baa corporate bond yields (as opposed to 10-year Treasuries). Based on history, it is reasonable to assume that an increase in 10-year Treasury yields will result in an increase in Baa corporate bond yields, but not necessarily on a one-to-one basis. In fact, credit spreads (the spread between Baa bond yields and the "10-Year") have historically tightened during periods of rising 10-year treasury rates. What does that mean? Simply put: if the 10-Year rates increase in response to economic growth, we would also expect Baa corporate bond yields and cap rates to increase, but at a more muted pace due to tighter credit spreads.
Higher cap rates translate into lower property values, all else being equal. But, all else isn't equal. The second part of the answer to the big question is that the impact of rising interest rates depends on the property type, location and tenant lease terms. In order for property values to not decline, higher cap rates need to be offset by increased cash flow. For example, a property that generates $12 million of cash flow would be valued at $200 million using a 6.0% cap rate. At a 6.5% cap rate, the value would be only $184.6 million – a 7.7% decrease. The property would have to generate an additional $1 million of cash flow (an 8.3% increase) to offset the impact of the higher cap rate. The impact of leverage further magnifies higher cap rates. For instance, if the property was 50% leveraged with a mortgage, the 7.7% decrease in property value would result in 15.4% decrease in equity (or net asset value).
The ability of commercial property owners to increase cash flow through rental increases depends on the length of lease terms for tenants in place, near-term lease expirations/renewals and current occupancy levels....MORE
US farmland faces asset bubble test
A century ago, US farmland real estate enjoyed a huge boom. Interest rates were low. Grain prices were high. The world’s appetite for agricultural exports seemed endless.
Now, as a strikingly similar story unfolds, land investors are hoping for a different ending.
From 1900-1919 US farmland gained 70 per cent. Then the farming economy was hit by a rise in interest rates and a slowdown in food imports after the first world war. Land prices collapsed back to turn-of-the-century levels by 1940.
Over the past decade, US farmland prices have doubled as the Federal Reserve has held interest rates at historic lows and demand has stayed strong. The big question is what will happens when monetary policy is tightened and the supply of grain grows....MUCH MORE
On its risk appetite index, Credit Suisse views the index value of 5 as "euphoria". And we are headed there, as markets embrace risk.
|Source: Credit Suisse|
This is not surprising given where credit markets are trading. As an example, the Merrill European High Yield Index average yield is now below 4.5% (4.46% to be precise)....MORE
We dipped into some of Global Financial Data's public work on the Berlin Stock Exchange ca. 1923. Link below.
They probably have stats on the Denarius/Shekel in A.D. 70.
From FT Alphaville:
Everlasting credit, the long view
From historical chart specialists Global Financial Data — the yield on perpetual Consols versus the stock of UK sovereign debt…all the way back to 1742. Click to view….MORE (chart, discussion)Unfortunately no discussion of the convexity of an instrument that has this kind of duration.
Here's part of that October 2008 post [the DJIA was up 11% that day]:
"Ja, ja, So Your U.S. Market is Up a Bit, Ever Hear of Berlin, 1923?"
...It was while skimming the GFD list that this popped out (remember this is inflation adjusted!):
|Best Months||Percent Return||Worst Month||Percent Return|
|September 1923||99.12%||August 1922||-43.90%|
|December 1922||67.91%||December 1923||-31.68%|
|June 1923||60.38%||July 1922||-29.94%|
|August 1924||47.66%||August 1923||-29.32%|
|November 1923||38.25%||November 1919||-29.26%|
|October 1949||32.04%||April 1924||-27.98%|
|April 1920||31.67%||September 1931||-25.85%|
|February 1923||29.58%||October 1922||-24.65%|
|April 1923||29.28%||November 1918||-23.16%|
|October 1923||26.20%||October 1987||-27.31%|
We like Family Offices with a caveat. The positive is very positive: everybody's interests are aligned.
The negative is: the management talent can be as mediocre as anywhere else in finance although some families can get around that problem. See below and after the jump.
From the Wall street Journal's Total Return blog:
What can you do if you’ve got a family office?
Besides having your financial affairs, charity work and wine collections taken care of, you can also have access to investment opportunities that might otherwise be out of reach.
Through family offices, some families—or teams of families—invest directly in privately held, middle-market companies, sidestepping the expensive fees charged by private-equity firms which hold similar investments.
In the Weekend Investor cover story , we explored that capability, called “direct investing,” which proponents say gives families a chance to exercise their operational know-how in addition to getting a leg-up on fees.Pritzker. Alrighty then.
Take Tony and J.B. Pritzker, brothers in the family that once owned the Hyatt hotel chain. The pair hired Paul Carbone last year from Baird Private Equity—the buyout and venture-capital arm of Robert W. Baird & Co.—to expand their direct-investing business. The direct-investing firm is part of the Pritzker Group, their family investment firm.
The firm recently invested in Peco Pallet in Yonkers, N.Y., which rents pallets to consumer-products makers, such as Kimberly-Clark and Kraft. Peco tries to distinguish itself with well-maintained pallets that don’t damage goods, says J.B. Pritzker.
Here's another name you'll know:
Monday, July 23, 2012
You Know Your Charity Is Big When... (MOS)
...You can hire these guys.
From Institutional Investor:
Allstate Alts Head Seeks Greener Pastures
Christopher Vogt, the head of alternatives for the $95.6 billion pension and insurance fund Allstate Investments has told friends and colleagues that he is leaving the fund to join the Margaret A. Cargill Philanthropies foundation, where he will serve as director of equities. Vogt will join Shawn Wischmeier, former CIO of the $72 billion North Carolina Retirement Systems, who was appointed CIO of Margret Cargill philanthropies. Vogt will report to Wischmeier.We looked at the Philanthropies in early 2011:
Based in Eden Prairie, Minnesota, Margaret A. Cargill Philanthropies comprises three grant-making groups founded by the late Margret Cargill — Margaret A. Cargill Foundation, Anne Ray Charitable Trust and Akaloa Resource Foundation. The fund, whose asset base of around $6 billion makes it one of the largest foundations in the country, is now in the process of building its investment portfolio....MORE
Insta-Charity: $4Billion from Mosaic Deal Moves Margaret Cargill Foundation into Top 15 Philanthropies (MOS
$1363.30 last. Here's the intro to our May 15 post:
Gold Down $30.00 as ETF's Could Dump Another 4,000,000 Ounces
$1394.50 -$30.00.We don't put much emphasis on "round numbers" and joke about the "psychologically important" $1346.51 number but it is a fact that yesterday's move stopped at $1399.90.
The next serious support is the $1321.50 print where the mid-April decline stopped. Through that and you're looking at the $1200 range. As the old-timers used to say, this market is broken more than the Ten Commandments....
Put simply the decline that preceded yesterday's pop did not test the April low of $1321.50, instead stalling out at $1336.30. At first blush the higher low would appear to be bullish but it's not. For whatever reason moves that start this way tend to fail. What you want is, at minimum, a symmetrical second bottom but even better is a second low that undercuts the first by a percent or two. I don't know why this is so, back in the day some smart technical analysts said it was to wash out any hope among the weaker holders but even in the algo age you get better moves out of the lower-second-low pattern. Why? Beats me. Here's yesterday's gold action:
Compare with the 2011 double bottom in the Dow Jones Industrials:
I had planned to do this post but the Wall Street Journal Folks did it better than I could have.
In another mini-milestone for Japan’s surging stock market, the Nikkei Stock Average was perched above the Dow Jones Industrial Average after both markets had closed for their Monday trading: 15360.81 for the Tokyo index to 15335.28 for the New York benchmark.
It’s the first time the Nikkei crossed the Dow in three years, and marks a return, of sorts, to the heyday when the Nikkei routinely far exceeded the Dow. In fact, from the 1950s through 2002, the Nikkei always had a greater number than the Dow. At its peak at the end of 1989, it was higher by factor of 14, when the Nikkei neared 40000 and the Dow was still below 3000.In the giant scheme of things the crossing doesn't mean much except as a relative strength indicator but I've been at the market for most of the crosses and don't see any reason not to take note of this one.
To be sure, investors are not wildly cheering the crossing point: the Nikkei remains 60% below its record hit in 1989 while the Dow is trading just a touch below its all-time high. And the two indices aren’t really comparable. The Dow is an index of 30 main stocks, while the Nikkei 225 is a broad index more comparable to the S&P 500 (which is considerably below the Nikkei, at about 1666)....MORE
We last saw Professor Woodford in Sunday's "Evans-Pritchard: 'BIS and IMF attacks on quantitative easing deeply misguided warn monetarists'". Here's a longer version of the forum held at the London Business School, from VoXEU:
With persistently weak economic conditions becoming the norm in Europe, economists are considering increasingly unconventional policy options. One tool that has yet to be taken out of storage is ‘helicopter money’, i.e. the overt monetary financing of government deficits. This column recounts a policy debate on helicopter money that was held at LBS in April 2013 among three of the world’s leading monetary economists.
Introduction by ReichlinAnd from Sunday's post:
Since the crisis central banks have implemented a variety of non-standard monetary policies aiming at stabilising nominal demand in the presence of major disruptions in financial markets. These policies had different intermediate objectives: market making, controlling long term interest rates or asset prices, support of credit via subsidies. They had a role in stabilising financial markets after the collapse of Lehman Brothers and the banking crisis which followed. Their effects on the real economy, however, are uncertain.1Notwithstanding this uncertainty the Bank of Japan has recently engaged in bold action, announcing that it will double the monetary base and its holding of government bonds in the next two years.
- Some think that quantitative easing will fuel the next financial bubble and that exiting will create financial instability (see Stein 2013).
- Others think that more should be done to sustain the real economy.Adair Turner has recently put a different option on the table (Turner 2013): "helicopter money" or permanent money creation. This is an idea that was originally discussed by Milton Friedman (Friedman 1948) and more recently by Bernanke in relation to the zero lower bound problem in Japan (Bernanke 2003). As Bernanke has suggested it can be implemented via transfers to households and businesses via a tax cut coupled with incremental purchases of government debt, so that the tax cut is in effect financed by money creation.Although the idea has been around a long time it is a taboo today. Non-standard monetary policies in response to the recent crisis have all led to an increase in the size of central banks’ balance sheets but in the recent experience no central bank, including the Bank of Japan, has purposefully increased the monetary base and committed to keep this additional money in circulation permanently. The idea, however, gets some support from academia.In his 2012 Jackson Hole speech Michael Woodford suggested a version of flexible inflation targeting whereby the central bank commits future monetary policy to a permanently higher nominal target (such as the path of nominal GDP) and discussed various tools within that framework, including permanent increases in the monetary base via fiscal transfers (Woodford 2012).In a situation of persistently weak economic conditions it makes sense to consider all options including tools that have stayed long in the closet.
The following is a summary of the questions posed by Reichlin and the answers by Turner and Woodford.
Question one : Adair, can you explain why, in your view, helicopter money is an option for monetary policy that is relevant to today?
'Helicopter money' – by which we mean overt money finance of increased fiscal deficits – may in some circumstances be the only certain way to stimulate nominal demand, and may carry with it less risk to future financial stability than the unconventional monetary policies currently being deployed.The crucial first question is: do we want more nominal demand? The answer should be yes if (i) we are confident that some of the increase will take the form of increased real output or (ii) if some increase in the inflation rate is in itself desirable. These conditions seem likely to apply in some developed economies today, with nominal GDP growth rates very low, depressed by private sector deleveraging in the aftermath of the financial crisis. And if these conditions do not pertain, we should not be trying to stimulate nominal GDP by any means.So let’s assume that increased nominal GDP growth is desirable. The problem is that other levers may be ineffective or have adverse side effects. Monetary policy, in both its conventional and unconventional forms, may be ‘pushing on a string’. Reducing policy interest rates to the zero bound fails to stimulate credit supply and demand in a ‘balance sheet recession’ in which the private sector is deleveraging. Cutting long-term interest rates by quantitative easing may be equally ineffective. And very low interest rates, sustained for many years, will encourage a search for yield, hence financial innovation and carry trades, which create risks to financial stability....MUCH MORE
"Were the Victorians cleverer than us? The decline in general intelligence estimated from a meta-analysis of the slowing of simple reaction time"
- Simple reaction time has slowed since 1889.
- Simple reaction time genetically correlates with g.
- Psychometric meta-analysis reveals a decline in g of − 1.23 points per decade.
- The decline between 1889 and 2004 is − 14.1 points.
- This is the first direct measurement of a probable dysgenic trend in IQ.
The Victorian era was marked by an explosion of innovation and genius, per capita rates of which appear to have declined subsequently. The presence of dysgenic fertility for IQ amongst Western nations, starting in the 19th century, suggests that these trends might be related to declining IQ. This is because high-IQ people are more productive and more creative. We tested the hypothesis that the Victorians were cleverer than modern populations, using high-quality instruments, namely measures of simple visual reaction time in a meta-analytic study. Simple reaction time measures correlate substantially with measures of general intelligence (g) and are considered elementary measures of cognition. In this study we used the data on the secular slowing of simple reaction time described in a meta-analysis of 14 age-matched studies from Western countries conducted between 1884 and 2004 to estimate the decline in g that may have resulted from the presence of dysgenic fertility. Using psychometric meta-analysis we computed the true correlation between simple reaction time and g, yielding a decline of − 1.23 IQ points per decade or fourteen IQ points since Victorian times. These findings strongly indicate that with respect to g the Victorians were substantially cleverer than modern Western populations.
"I would be willing to wager that if an average citizen from Athens of 1000 BC were to appear suddenly among us, he or she would be among the brightest and most intellectually alive of our colleagues and companions. We would be surprised by our time-visitor’s memory, broad range of ideas and clear-sighted view of important issues. I would also guess that he or she would be among the most emotionally stable of our friends and colleagues."...
Monday, May 20, 2013
Storms this big, EF-4, EF-5, in urban areas are very, very bad.
From KFOR TV:
Efforts switch to recovery at Moore, Okla. elementary school
MOORE, Okla. – Officials said they are no longer working a search and rescue effort but now a recovery mission at the a Moore elementary school where children and teachers took shelter Monday.The F-5 that hit Oklahoma City in 1999 killed 36 (as part of an outbreak that killed 46 people) and it looks like this will be worse.
First responders told KFOR-TV’s Lance West they don’t believe there are anymore survivors in the Plaza Towers Elementary school.
So far the bodies of seven children have been recovered.
Crews said they believe 20 to 30 more children may be inside but again, do not believe there are anymore survivors....MORE
Here's the little girl who will probably become the face of the disaster:
Depending on whose list you use Norway has the world's 4th, 5th or 6th highest income per capita.
From Reuters Feb. 15, 2013:
Norway plans 12-hour prime-time TV show of a fireplace
Norwegian public television plans to broadcast a burning fireplace for 12 straight hours from Friday evening, with firewood specialists providing color commentary, expert advice and a bit of cultural tutoring.
"We'll talk about the very nerdy subjects like burning, slicing and stacking the wood, but we'll also have cultural segments with music and poems," Rune Moeklebust, a producer for state broadcaster NRK.
"It will be very slow but noble television."If that isn't vertical enough for you you can always head east to Tango-mad Finland.
Moeklebust got the idea for the show from the wild success of a firewood book by Lars Mytting, Norway's biggest firewood celebrity. His book "Hel Ved", which means Strong Character in English, is a play on words because ved also means "firewood".
Mytting, a guest on tonight's broadcast, has sold close to 130,000 copies of the book since last year, a huge number in a country of 5 million people, with his publisher claiming that only "Fifty Shades of Grey" sold more copies during the recent holiday season.
NRK is not new to quirky programming.
In 2011, it broadcast 134 hours non-stop of a cruise ship going up the Norwegian coast to the Arctic, bagging the world record for the longest continuous TV program along the way.
At one point 600,000 people tuned in to watch that program with 3.2 million people, or over 60 percent of the population, glued to the screen at one point....MORE
Apparently gold's intrinsic value is somewhere between $1336.30 at a little after 8:00 p.m. EDT Sun. and $1397.90 at 12:00 p.m. EDT Mon.
Tomorrow it will have a different intrinsic value.
See also, from yesterday's Mankiw post:
Tuesday, October 28, 2008Climateer Line of the Day: 11% Up Division
From Commenter Paul on Marginal Revolution's post
I believe in the semi-strong efficient markets hypothesis. That is, around 2pm EDT today, something happened to make the fair value of equities 8% higher.
This is a repost from June 2012, memory of which was triggered by today's Bloomber story:
And from last year, a story that apparently has some legs:
U.S. 'Genius' visa attracts entrepreneurs and Playmates
Shera Bechard, the Canadian-born former girlfriend of Playboy Enterprises founder Hugh Hefner, would not be an obvious candidate for the special visas that the U.S. government reserves for "individuals with extraordinary ability."
Playboy magazine named Bechard Miss November in 2010, and she also started an online photo-sharing craze called "Frisky Friday." Neither seems quite on the level of an "internationally recognized award, such as a Nobel Prize," which the government cites as a possible qualification.
But Los Angeles immigration lawyer Chris Wright argued that Bechard's accomplishments earned her a slot. The government ultimately agreed.
That kind of success has put Wright on the map as the go-to visa fixer for both Hollywood and Silicon Valley. It also highlights the use of so-called genius visas known as O-1s and EB-1s, which have largely escaped political controversy and are now the immigration solution of choice for many entrepreneurs....MORE
Part of our ongoing "Short the French" series.
More than 8,000 French households' tax bills topped 100 percent of their income last year, the business newspaper Les Echos reported on Saturday, citing Finance Ministry data.
The newspaper said that the exceptionally high level of taxation was due to a one-off levy last year on 2011 incomes for households with assets of more than 1.3 million euros ($1.67 million).
President Francois Hollande's Socialist government imposed the tax surcharge last year, shortly after taking office, to offset the impact of a rebate scheme created by its conservative predecessor to cap an individual's overall taxation at 50 percent of income.
The government has been forced to redraft a proposed bill to levy a temporary 75 percent tax on earnings over 1 million euros, which had been one of Hollande's campaign pledges.
The Constitutional Council has judged such a high rate of taxation to be unfair, leaving the government to rehash it to hit companies rather than individuals....MORE
From The Australian:
Ancient discovery set to rewrite Australian history
Five copper coins and a nearly 70-year-old map with an ‘‘X’’ might lead to a discovery that could rewrite Australia’s history.
Australian scientist Ian McIntosh, currently Professor of Anthropology at Indiana University in the US, plans an expedition in July that has stirred up the archaeological community.
The scientist wants to revisit the location where five coins were found in the Northern Territory in 1944 that have proven to be 1000 years old, opening up the possibility that seafarers from distant countries might have landed in Australia much earlier than what is currently believed.
Back in 1944 during World War II, after Japanese bombers had attacked Darwin two years earlier, the Wessel Islands - an uninhabited group of islands off Australia’s north coast - had become a strategic position to help protect the mainland.
More accurately the idea of eldercare robots is leaving Japan, not something like “...There
is growing anecdotal evidence that this may be due to Mexican
immigrants departing the United States in search of a better life in
From the New York Times' Bits blog:
In the opening scene of the movie “Robot & Frank,” which takes place in the near future, Frank, an elderly man who lives alone, is arguing with his son about going to a medical center for Alzheimer’s treatment when the son interrupts him. “I brought you something,” he says to Frank. Then the son pulls a large, white humanoid robot from the trunk of his car.
Frank watches in disbelief. “You have got to be kidding me,” he says as a robot helper, called the VGC-60L, stands in front of him. “I’m not this pathetic!”
But as Frank soon learns, he doesn’t have much of a choice. His new robot helper is there to cook, clean, garden and keep him company. His son, mired in family and work life, is too busy to care for his ailing father.
Just like Frank, as the baby boomer generation grows old and if the number of elderly care workers fails to grow with it, many people might end up being cared for by robots. According to the Health and Human Services Department, there will be 72.1 million Americans over the age of 65 by 2030, which is nearly double the number today. According to the Bureau of Labor Statistics, the country will need 70 percent more home aide jobs by 2020, long before that bubble of retirees. But filling those jobs is proving to be difficult because the salaries are low. In many states, in-home aides make an average of $20,820 annually.
“There are two trends that are going in opposite directions. One is the increasing number of elderly people, and the other is the decline in the number of people to take care of them,” said Jim Osborn, a roboticist and executive director of the Robotics Institute’s Quality of Life Technology Center at Carnegie Mellon University. “Part of the view we’ve already espoused is that robots will start to fill in those gaps.”Earlier this month:
Researchers at the Georgia Institute of Technology have developed Cody, a robotic nurse the university says is “gentle enough to bathe elderly patients.” There is also HERB, which is short for Home Exploring Robot Butler. Made by researchers at Carnegie Mellon, it is designed to fetch household objects like cups and can even clean a kitchen. Hector, a robot that is being developed by the University of Reading in England, can remind patients to take their medicine, keep track of their eyeglasses and assist in the event of a fall....MORE
"Japan to promote robots for nursing home care"
Take Professor Shiller from this morning's "Investors Shift Fundamental Focus to 2014" and combine with the post immediately below, "Not Quite Clear on the Concept: How to Take Advantage of the Sharing Economy" and you end up with something like Business Insider's "ROBERT SHILLER: Neuroeconomics Will Reshape The Finance System":
Economist Robert Shiller has argued in favor of the "genuine beauty" in finance.
He believes that financial instruments can contribute to a better society because humans have an innate tendency towards generosity.
In an interview published by Credit Suisse he says that that finance recognizes "the egotistical side of human nature. This presents potential for conflict."
But these are things that he argues neuroeconomics will help shape in coming decade. Here is an excerpt from the interview...MOREThis is an example of synchronicity (both links to Wikipedia):
Synchronicity is the experience of two or more events that are apparently causally unrelated or unlikely to occur together by chance, yet are experienced as occurring together in a meaningful manner....But may be confused with serendipity:
Serendipity means a "happy accident" or "pleasant surprise"; specifically, the accident of finding something good or useful while not specifically searching for it....This post may or may not be useful, your call.
Either way it is not a case of Baader-Meinhof Phenomena:
You may have heard about Baader-Meinhof Phenomenon before. In fact, you probably learned about it for the first time very recently. If not, then you just might hear about it again very soon. Baader-Meinhof is the phenomenon where one happens upon some obscure piece of information-- often an unfamiliar word or name-- and soon afterwards encounters the same subject again, often repeatedly. Anytime the phrase "That's so weird, I just heard about that the other day" would be appropriate, the utterer is hip-deep in Baader-Meinhof.
Most people seem to have experienced the phenomenon at least a few times in their lives, and many people encounter it with such regularity that they anticipate it upon the introduction of new information. But what is the underlying cause? Is there some hidden meaning behind Baader-Meinhof events?-via Damn Interesting
The phenomenon bears some similarity to synchronicity, which is the experience of having a highly meaningful coincidence... such as having someone telephone you while you are thinking about them....
Today's "Wall Street Journal This Morning" radio show had a segment on The Sharing Economy which was a pretty good intro for newbs but had the very unfortunate teaser I used in the headline:
How to take advantage of the Sharing Economy.Ouch.
As Izzy said in the second paragraph of last Wednesday's "Social networks as evolutionary game theory":
...Many of these collaborative models do after all offer a tempting opportunity to cheat or exploit the model. In home exchanges, there’s the temptation to steal or damage your fellow swapper’s house. In shared car schemes, there’s the temptation to damage or abuse the shared equipment. In file sharing, there’s the temptation never to reciprocate and just to take, take, take. In timebank job swapping there’s a temptation to under perform. And in car pooling or couch-surfing there’s the temptation for an unsavoury sort to totally take advantage. And so on…I don't mean to be harsh on WSJAM's Gordon Deal and Gina Cervetti, they are pro financial broadcasters and probably don't write their own teasers anyway. And after the break Gordon did change the teaser to "How can you make the sharing economy work for you?"
It's just that the first run-through was so jarring.
Me? I think of the chimpanzees and the dopamine D4 receptor:
At the Public Library of Science (PLoS):
Dopamine D4 Receptor Gene Associated with Fairness Preference in Ultimatum Game
Following up on this morning's "Ben the Optimist".
From FT Alphaville:
Bernanke weighs in on robot wars; brings Keynes for backup
The writer is Alphaville's Kate Mackenzie who surprised me with the robot, Keynes etc. pickup. She does give the nod to Izabella Kaminska for doing some of the early "Connections" (science historian James Burke is still alive, who knew?) in this regard but we know Kate more for founding the FT's Energy Source blog (still on the blogroll at left, as an archive).Many factors affect the development of the economy, notably among them a nation’s economic and political institutions, but over long periods probably the most important factor is the pace of scientific and technological progress.That’s Ben Bernanke addressing a graduating class at Bard College at Simon’s Rock, Massachusetts, on Saturday. He goes on to say that not everyone believes this advancement is going to continue at such a great pace.
Yes, he is talking about Robert Gordon and Tyler Cowen, and their arguments that much of the low-hanging fruit has been plucked and we face a lower-growth future, as evidenced by the incremental advancements of recent years. Here’s Bernanke again...MUCH MORE
And that's where it gets interesting. She (gently) pokes at some parts of Bernanke's speech and then rolls out the heavy guns:
"...Secondly, we’re not completely convinced that clean-energy technologies, at least ones such as wave power, can be lumped in with developments in, say, robotics and communications. Changes in energy are just harder: the barriers are higher; infrastructure is an issue; path dependency is a problem...."That's a fact, Jack.
There is no Moore's Law in energy and the people who, 5-10 years ago were acting as if there was are being shown to be at best naïfs and more probably as rentseekers and liars, but of course I repeat myself.*
Folks who argue that the solar biz demonstrates price declines similar to Moore's Law either don't know about the Chinese plan to bankrupt the industry by selling below cost (akin to what they did in rare earths) and should be kindly corrected or they do know and make their spiel in spite of knowing and should be shot.
* Suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself.
- Mark Twain, a Biography
The entire Connections series is online.
Political Calculations does S&P price modeling based on earnings and more importantly dividends.
I sensed a kindred spirit when I saw his link (The S&P 500 at Your Fingertips) to Prof. Shiller's S&P price database, which is actually the Cowles Commission database with the S&P extension. From 2010's "New York Guano":
Equity Valuation and Forecasting Future Returns and a Gift for our ReadersAnd from Political Calculations this morning:
A subject near and dear to my heart. I may be the only person I've ever met who read every page of The Cowles Commission's Common Stock Indexes 1871-1937.
[you must be a blast at parties -ed]
...That's Prof. Robert J. Shiller's Irrational Exuberance webpage. Here's his Yale homepage. When he took on Efficient Market Hypothesis back in the early '80's I decided I liked the guy. Publishing IE in March 2000 with the Nasdaq hitting 5048 (subsequent low 1114) pretty much convinced me. In addition to his professorships he's on the research staff of The Cowles Foundation for Research in Economics....
The S&P 500 Enters a Post-Transition Period
You have to admit - we were right. Last week was indeed a big week for the S&P 500!
From Monday, 13 May 2013 to Friday, 17 May 2013, the S&P 500 rose by nearly 2%, or 32.35 points, from 1630.77 to a new record high of 1666.12. Over half the gain for the week came on Friday, 17 May 2013, as the S&P 500 rocketed up by 17 points.
In doing that, the S&P 500 completed the transition it began on 1 May 2013, as investors shifted their forward-looking focus from the second quarter of 2013 to the first quarter of 2014 in setting their expectations for the sustainable portion of future earnings growth for the stock market (a.k.a. "future dividend growth".) We can observe this transition directly in our chart below as the movement of the daily and 20-day moving average of the change in the rate of growth of stock prices from the red line representing 2013-Q2 to the green line representing 2014-Q1, which correspond to the change in the year-over-year rates of growth of the trailing year dividends per share expected for each of these quarters.
Now, even though this confuses the more dim-witted among Seeking Alpha's commenters, this latest transition of investor forward-looking focus from 2013-Q2 to 2014-Q4 follows very similar transitions that have taken place periodically since the end of the Federal Reserve's QE 2.0 program at the end of June 2011. Following the deflation of that mini-bubble in the weeks that followed, stock prices have since been very fundamentally-driven with little noisy exception, with the pace of acceleration of stock prices matching up with the changes in the growth rates of trailing year dividends per share for discrete future quarters....MORE
From The Economist:
A practice which underpins swathes of the financial system faces turmoil
IT IS one of finance’s odder rituals: every year come springtime around $100 billion in European shares goes on a little holiday. In the days running up to annual dividend payments of listed companies, many long-term shareholders, such as pension funds, lend their holdings to a third party. A week later, once the dividend has been paid to the temporary owner, the shares are returned safely to the pension funds’ vaults, where they remain until the following spring.
The brief excursion is not designed to improve the share certificates’ complexion. Its purpose is to circumvent withholding taxes on dividends, which some investors have to pay upfront and others do not. The tax-exempt borrower pays a rental fee equal to the dividend that the pension fund will now miss out on, minus a cut for itself and a clutch of banking middlemen. All sides are better off, bar the taxman.
The European dividend-arbitrage trade, as it is known, is just one facet of the “securities lending” industry. Globally, over $1.5 trillion in shares and bonds are out on loan at any one time, according to Markit, a research firm. A further $12 trillion is on offer. Many staple operations of high finance, such as the ability for investors to bet on falling share prices, depend on securities lending. But new regulation, in particular Europe’s financial-transaction tax, could make it much more difficult—even as other new rules may make it more necessary.
A wide coalition is defending the status quo. Long-term owners of stocks who agree to lend them, such as pension funds and insurance companies, are keen on the income stream that this generates: $11 billion globally last year, according to Markit. “We look at securities lending as a way of unlocking incremental returns for our investors without undue risk,” says David Lonergan of BlackRock, an asset manager. For a balanced portfolio which includes both shares and bonds, the uplift to overall returns is in the order of 0.05-0.10% a year, explains James Slater of BNY Mellon, a financial group which helps to arrange share loans. That is certainly worth grabbing in a low-interest-rate environment. The Teacher Retirement System of Texas, a pension fund, says it made an average of $100m a year in the past decade from lending securities.
HT: Abnormal Returns
Stock lending is also used by firms that want to trade low-grade securities (such as equities) for better-quality assets (such as government bonds), a piece of financial alchemy known as “collateral upgrading”. Banks resort to this to help them meet regulatory capital requirements, or to get further financing from a central bank that requires high-quality assets to be posted as collateral. Multinationals also need safe assets to buy and sell derivatives, which they use, for example, to lock in interest rates or currency levels over time.
This points to a hazard inherent to securities lending: your counterparty has to be around to return what it has borrowed from you. Industry boosters say any risk is mitigated by stringent collateral requirements: borrowers have to leave ample cash (or other assets) with the lenders of the stock. They note the orderly resolution when Lehman Brothers, an investment bank, collapsed in 2008....MORE
Via Professor Perry's Carpe Diem blog at the AEI:
Quotation of the day: Pessimists are wrong
“Pessimists may be paying too little attention to the strength of the underlying economic and social forces that generate innovation in the modern world, Both humanity’s capacity to innovate and the incentives to innovate are greater today than at any other time in history. As trade and globalization increase the size of the potential market for new products, the possible economic rewards for being first with an innovative product or process are growing rapidly.”Update:
Ben Bernanke, Optimist: The Rest of the Story