Monday, November 30, 2009

IS-LM links of the day 11-30-09

How to increase employment (Becker-Posner Blog)

The 25 smartest people of the decade (The Daily Beast)

Cramer vs furor (NYP)

Wednesday, November 25, 2009

Friedman Important Fact of the Day

And it is on cosmetic surgery:

...cosmetic surgery is now primarily consumed not by the rich, but by the working and lower-middle classes, sometimes even by the poor. According to the American Society for Aesthetic Plastic Surgery (ASAPS), about 1/3 of cosmetic surgery is consumed by people who make less than $30,000 a year. About 70% of it is consumed by people who make less than $60,000 a year. It is mostly women (90%) and mostly white, middle-aged women (80% and between 35-55 years old).

Happy Thanksgiving Everyone!

I want to wish everyone a happy Thanksgiving. I hope everyone has a wonderful holiday weekend. And now, the last links of the week, for me anyway:

Yield matters (WSJ)

Why did Warren Buffett take out a one year, $8 billion loan (Clusterstock) -and you might notice yours truly has (currently) the highest rated response

The role of the database in the crisis (Felix Salmon)

Friday, November 20, 2009

John Bates Clark Scary Chart of the Day

The numbers are out, and they sure don't look good. Unemployment numbers are awful, but they aren't entirely pervasive. Some states are making out better than others: notably the northern Midwest states (ND, SD, and NE). Only conclusion I can draw is that these economies that are largely agriculture-based (notably corn) must be very insulated from the macro-level problems. Just check this out in a chart from Calculated Risk:

IS-LM links of the day 11-20-09

What is "enough"? (Project Syndicate)

How Saddam thought-from an economist's perspective (Cheap Talk)

Why no one expects a strong recovery (WSJ)

If people start living to 100, what are the investment plays (Humble Student of the Markets)

Thursday, November 19, 2009

John Bates Clark Chart of the Day

Investing fads since 1996, courtesy of the Reformed Broker:

Monday, November 16, 2009

Interesting Question

I was walking down the street with my colleague when we noticed a guy was hawking one of the local magazine/newspapers. Most of the time they are free; at least I know they are when you are entering/leaving the subway. But today this enterprising young man was offering them for "$1 donations", which is what made it remarkable at all. I turned to my coworker and asked, "does he really think that he will make more money by accepting $1 donations rather than just chargin $1 as the price?" I really don't know the answer, but perhaps for such an ubiquitous item at the lowest end of the price scale (which often goes for free) it does maximize his sales.

IS-LM links of the day 11-16-09

Greg Mankiw on the econ 101 of healthcare reform

Alan Blinder: How Washington Can Create Jobs (WSJ)

Stocks are cheaper now at 10k than they were in 1999 (NYT)

8 Lessons from John Paulson's Greatest Trade (WSJ)

Friday, November 13, 2009

Haiku - Ricardo & McDonald's

This is one idea that we still have to continually defend to this day:
Ricardo put forth
comparative advantage
to defend free trade.

If I have to pick
one last meal, it sure as shit
won't be McDonald's.


IS-LM links of the day 11-13-09

the "real" unemployment rate (Market Talk)

average points per 3 point attempt now exceed points per possession (Yglesias)

How an individual investor can become more risk averse (Condor Options)

An awesome depiction of scale (Utah)

Wednesday, November 11, 2009

US loses securities fraud case, managers everywhere rejoice

The top headline on the front page and above the fold in this morning's Wall Street Journal read: "US Loses Bear Fraud Case".
The two men, Ralph Cioffi and Matthew Tannin, were accused of lying to investors
-- telling them they were optimistic about their funds, while privately worrying
they were all but dead.

The fact that the Bear managers were acquited even though they held two different opinions on their funds should come as an endorsement to chief executives everywhere that they can buoy their firms by being openly optimistic about the future, while privately worrying about the short term.
Last year there were a number of articles written that decried managers who went onto CNBC, looking into the camera and telling America their company had strong fundamentals. The articles practically indicted them by saying they were commiting fraud. But that isn't what they were doing. What they actually did was try to lower their borrowing costs to propel their companies through the rough patch of 2008. By pitching their stock on TV they may have prevented heavy losses from turning into even heavier losses which kept an extra pad of equity on their balance sheets. This, in turn, made their companies' commercial paper easier to roll over (arguably the most dangerous and worrisome aspect of the crisis last year for executives). These actions, though, are ultimately in the shareholders interest. A complement to a manager's duty of creating shareholder value is to maintain that value when the market turns sour.
I for one am glad these fund managers were acquitted, because it allows executives to place their investors interests at the forefront without worrying about contingent liabilities by potential litigants if the wheels fall off.

IS-LM links of the day 11-11-09

Improve investing by moving away from traditional beta and cap weights (CXO)

Will rising oil prices derail the economy (EconBrowswer)

Nouriel Roubini's track record in 2009 (Wall St. Cheat Sheet)

Great traders expect mistakes, but follow them up with wins (Kirk Report)

Monday, November 9, 2009

Why I love finance

I have heard many times that the key to success is to find something you love and then to do that. Well, I know what I love: financial markets. It doesn’t matter to me what kind: equities, stocks, options, futures, swaps, or commodities; I can see the efficient beauty in all of them. I want to learn as much as I can about them so that I can use that knowledge to profit from that. I think that my discovery of markets is the best I’ve ever made, save one (hat tip goes to you Jenny). I get fired up about markets: I read about them constantly and, if I have a willing counterpart, I could talk about them all day long. Recently I’ve wanted to know where that passion has its genesis. I’ve put together a detailed, and perhaps incomplete, list of factors: family upbringing, aptitude for numbers, the challenge, the role they allow me to play (capitalist), and the prospect of the big payday.

My girlfriend and I had been dating for a few months before she felt comfortable doing a holiday tour to meet both of my families (divorce). The first comment she made after we finished at both houses was how large of a difference there is between my two families: at one table the stock market dominates the conversation and at the other, politics and books. I think the fusion of the two helps to explain why I like reading financial non-fiction so much.

When I think back on my childhood, I can distinctly recall a number of financial anecdotes. I remember having to watch the ticker cross the screen until the right three letters appeared before I could watch after-school cartoons. And I remember how I gave my first hot stock tip: I was listening to a Bloomberg pundit give his commentary on a great company, Cisco, with really bright prospects. I liked his argument. I was persuaded, so I recommended it to my mom. OK, this was around 1998 when the stock market was red hot and my mom ended up tripling her investment, on paper. Emphasis is on paper. I’m not Edwin Lefevre or Jim Cramer so I’m not going to try to claim that I kept a ledger of recorded fake trades with the corresponding imaginary profits tabulated. However, I will maintain that I watched and I listened, all the while accumulating interest and passing knowledge.

One of the reasons I loved the ticker so much is because I have a strong affinity for numbers. Numbers are systematic, they don’t waiver, they can’t change their mind, and they aren’t open to interpretation. Around middle school I would watch SportsCenter for hours. I would watch the exact same show back-to-back to memorize the sports stats and figures, because I wanted to have that verbal ammo ready to drop in conversations with older people. I felt like I was making valuable contributions, and the facts served as validation of my worth.

I was good with numbers so I was in my element in math classes. I excelled at math so I poured relatively more effort into these courses, negatively affecting my language arts skills, specifically writing. This caught up with me in college, where I was shocked to find that my economics 101 course required more writing than it did numbers. I did poorly, very poorly; recording my first and only ‘D’. I thought I was surely on my way to join thousands of other Americans whose economics career lasted only a semester, only besting those who couldn’t even survive that long. But, under the urging of my mom who told me I was now destined to get my PhD in economics, I toughed it and continued on to the next course, macroeconomics. I found the material in 102 much more engaging, because I could relate to the topics more easily. My macro professor prompted me on to additional courses because “econ is the shortest major, only twelve courses” he said. So I eventually found econometrics. And I am glad that I did: I thought it was wonderful, I felt like Columbus discovering America. I was in love with the elegance of using quantitative models to describe anything you could dream up. To put the icing on the cake, you could even quantify how well it described these relationships [R-squared].

As I finished college I weighed the options of more schooling versus starting my career. Three factors encourage me to go back to school: 1.) everyone in my family has a graduate degree, 2.) I thought the job market was weak (retrospectively it ended up being true but only the base of a mountain of unemployment), and 3.) as my academic advisor coaxed me, the opportunity cost was lower for more schooling-free tuition with a higher wage afterwards. While I was at Ohio, I took my first finance course. Wow! We learned about concepts revolving around stocks and bonds all class period. I was infatuated with the idea that all the data from a company’s financial statements could be used to derive its intrinsic value which is why I really connected with Benjamin Graham’s books.

But my life in grad school wasn’t all rainbows and lollipops though; I felt very detached from my professors. I hated the way my finance professor hung her hat on the efficient markets hypothesis and confidently (read complacently) preached it, as well as diversification through indexation. I felt that if the world actually worked like this and investing were purely as easy and passive as she described, what value added could any financial professional really have? And, by extension, what was I truly learning? I became disillusioned with some of my professors. So I went through the motions of learning their academic theories but what I craved was a practitioner’s education. So I became didactic, supplementing my coursework with investment books. I read great financial classics like Ben Graham’s The Intelligent Investor and Jesse Livermore’s How to Trade in Stocks; modern triumphs like the Essays of Warren Buffett and Peter Lynch’s Beating the Street; and even some grocery-store type books like Joel Greenblatt’s The Little Book that Beat the Market. I wanted to show these professors that you didn’t have to blindly lecture diversification through ETFs, so I opened my own trading account to pick stocks I am doing well, with realized gains over 100% and unrealized gains averaging 61%.

I think my friends would consider me a contrarian in many aspects, which is probably in synch with another reason I love the markets so much: because they frustrate the hell out of most people (also, from my readings, what makes a good trader). Tons of people see financial markets as risky as a big casino, where sometimes you win but most of the time you lose. They end up being more risk averse than I think they should, socking their entire nest egg away in savings accounts. I see the markets as a place where I can be a capitalist no matter the size of my stake, as well as the only place that offers real capital appreciation long-term. If I correctly surmise that a company is undervalued, has a considerable edge in a market, and growth opportunities, then I will win nine times out of ten. I don’t mind that to do this requires a hefty amount of work, including constant market attention. I like reading the Wall Street Journal daily and I don’t mind hitting F5 ten times a minute to check my brokerage account.

I love the competitive challenge that the market triggers in people. Returns are returns and they are measured in percentages. I like the fact that finance people are hyper competitive and are always comparing to each other’s percentage returns. I cling to the idea that I will probably never have as many assets under management as a Warren Buffett or a Bill Gross but at least on some level I can compare my ability as a market analyst against them. Everyone gets to play the part that they want in the markets; for me, that is being a capitalist, an allocator of scarce resources to businesses. I think it is one of the most important jobs in the world, because even on the microcosmic level that I am operating on now it has an impact on a company’s cost of capital which impacts their business investment decisions.

I can’t stay away from the markets: if I can’t get to a computer to get my fill, I text message Google one stock ticker at a time until I go through the whole litany of my portfolio. I’ve staked my academic career on finance and economics. I fill my leisure time with financial non-fiction. Finance is what interests me the most and I’m passionate about it. As I said before, passion is the cornerstone to success and since I’ve identified mine it becomes only a matter of finding the right, first step to begin my life-long career. I’m Dan Wright and I love the markets.

IS-LM links of the day 11-09-09

Friday, November 6, 2009

Bad Unemployment Figures

Bloomberg reports that unemployment has crossed the 10% threshold for the first time in 26 years.

The unemployment rate in the U.S. soared to a 26-year high of 10.2 percent in October and employers cut more jobs than forecast, underscoring why Federal Reserve policy makers say interest rates will remain near zero.
Payrolls fell by 190,000 workers last month, compared with a 175,000 drop anticipated by the median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. The jobless rate gained from 9.8 percent in September and exceeded 10 percent for the first time since 1983.

IS-LM links of the day 11-06-09

Fiddling With Climate Change and Healthcare While Rome Burns (The Reformed Broker)

What phones may do in two years (NYT)

Wall Street bonuses by asset class (Investing Contrarian)

The government has been subsidizing Wall Street risk for too long (WSJ)

On the issues with estimating the equity risk premium post-crisis (SSRN)

Thursday, November 5, 2009

Friedman Fact of the Day

1 in 5 visitors to the White House (out of 492 logged) since January have come from people with their last name beginning with "S". This is an unexpected find considering just over 8% of American last names start with the same letter. Statistically significant? Probably, considering the sample size is large enough. Graph courtesy of Paul Kedrosky.

Hayek Original Haikus of the Day 11-05-09

Markowitz theorized
uncorrelated assets
up-return, down-risk.

Andrew Hall knows corn,
oil, et al more than most;
for great skill, big pay.


IS-LM links of the day 11-05-09

Analyzing Warren Buffett's purchase of Burlington Northern (Atlantic)

Tuesday, November 3, 2009

Hayek Origininal Haiku of the Day 11-03-09

Quantity supplied
increases as price rises,
positively sloped.

Need more capital.
Do you issue debt or stock?
Hotelling's Lemma.


Monday, November 2, 2009

100th Post! Hayek Origininal Haiku of the Day

Another meeting, another opportunity to write a sweet, economic haiku:

Ricardo professed
comparative advantage
to defend free trade.


IS-LM links of the day 11-02-09

A call to re-balance your portfolio (WSJ)

The super-rich may evolve into another species says a futurologist (Telegraph)

"I sometimes wonder if the very rich can live, on average, 20 years longer than the poor. That's 20 more years of earning and saving. Think about wealth and power and the advantages that you pass on to your children."

How Goldman Sachs executed its winning play on subprime (naked capitalism)

Are stocks and bonds contradicting each other? (MR)

Edward Lazear: Stimulus and the Jobless Recovery (WSJ)