Thursday, February 24, 2011

More on Inequality

I thought this graphic was fascinating:

I think this is a great graphic that reflects more on the majority of Americans' numeracy than it does on their actual views on wealth distribution. But if we assume that everyone has a good grasp on percentages then we could conclude that the majority of Americans are advocates for more redistributive policies (not my preference).

I have long held the belief that if you hit the restart button on society and reallocated all of its resources equally to everyone, within a short amount of time, the distribution would shift towards the middle bargraph. I believe that certain people are ingrained to spend, even beyond their means, which certain other people finance because they are ingrained to save. So eventually we reach an equilibrium where the top 20% (extreme savers) accumulate a much larger percentage (multiples) of society's assets than the bottom 20%. Add on the compounding of interest over years - positive for the savers and negative for the borrowers - and you can quickly see how the gargantuan gulf in wealth is formed.

Hat tip: The Reformed Broker.

Thursday, February 17, 2011

Haiku - Momentum

Momentum trading
Will price trends really persist?
Yes, concludes research.

I debated the last line as either what appears or "Hedge funds bet on it." I think what appears is probably stronger.

Thursday, February 10, 2011

Great Quote - Corporate America

I'm reading Bethany McLean and Joe Nocera's book "All the Devils Are Here: The Hidden History of the Financial Crisis", which is fantastic. They really stick it to the subprime originators, Fannie and Freddie, and the ratings agencies. One of the passages I was reading yesterday caught my eye:
"The people who are propelled corporate America are the guys who said yes to an idea that worked", he [former Countrywide President Stan Kurland] later told a friend. "The guys who said no to a big failure--there's no list for that. That's why we end up with bubbles." (pg. 142)
Isn't it so true? The people who get promoted are the people who ran with an idea in the face of doubters. The world is littered with skeptics - the people who say "that can't be done" - and the quickest way to get on the boss's radar and curry favor is to be positive, wage conflicts against coworkers, and win. Except in this instance, the "victory" for the man who went against the skeptical Kurland (most likely David Sambol) which pushed Countrywide into higher-risk subprime loans only amounted to short-term gains. Kurland's no's eventually led him to leave the company in late 2006. The yes-man was "right" for less than a year as the subprime market began to sour in the fall of 2007. From Wikipedia:
In the third quarter of 2007, subprime ARMs making up only 6.8% of USA mortgages outstanding also accounted for 43% of the foreclosures which began during that quarter.[21] By October 2007, approximately 16% of subprime adjustable rate mortgages (ARM) were either 90-days delinquent or the lender had begun foreclosure proceedings, roughly triple the rate of 2005.[22] By January 2008, the delinquency rate had risen to 21%[23] and by May 2008 it was 25%.[24]

Wednesday, February 9, 2011

A Portrait of Inequality

Economists spend a lot of time thinking about inequality, because of all the effects it has on society: life expectancy, disease rates, crime, happiness, social cohesion, and economic incentives. As a group, economists often fail to make numbers come alive (if you want to see someone who can make graphs more interesting than anyone try googling Hans Rosling). But I found this exerpt from The Economist to be especially interesting and informative:
Jan Pen, a Dutch economist who died last year, came up with a striking way to picture inequality. Imagine people’s height being proportional to their income, so that someone with an average income is of average height. Now imagine that the entire adult population of America is walking past you in a single hour, in ascending order of income.

Tuesday, February 8, 2011

Crowds Make Me Feel Lonely

On Sunday, my girlfriend and I went to a Super Bowl party. The party was a good time, but the conversations that I have with regular people outside of work make me realize how far my views are from mainstream. For one thing, I'm a die-hard libertarian. I find people's individual rights to be a great frame of reference when I think about politics. I don't know how other people form their own opinions but I'm not optimistic they have such a consistent groundwork as individual liberty. Here are a few examples of conversations that led me to the conclusion which is the title of the post:
  1. For example, one guy was talking about Redskins owner Dan Snyder who purchased a property on the Potomac a few years ago. He wanted to remove some trees that were obstructing the view from his house of the river. Some environmentalists didn't like this because the trees are "old". The speaker went on to express his populist "soak-the-rich" ideas about Snyder and how he deserves to get sued. It wouldn't have been congenial for me to have started a debate about it at the time, but it was informative that my pro-property rights and to some extent elitist views are not shared by my peers. There is probably some level of separation that happens which leads to the difference - I would put myself in Dan Snyder's place by saying "if I paid tens of millions of dollars for a home I damn well better be able to do whatever I want with it" and they probably don't project into that situation because they (perhaps rationally) don't believe it will ever apply to them.
  2. Another example but the same guy was talking to two ladies about the "rapist" Ben Roethlisberger. I didn't engage with him but I couldn't let it go without getting the thought off my chest. I turned to my girlfriend and said "you know in this country you are presumed innocent until proven guilty but if the verdict is innocent you're still guilty in the public's eyes just by virtue of being accused".
  3. The final example that I have is from the commercial where they are doing "baby tests" and the baby flies forward and smacks into glass then slides down. The girls' mouths were agape. One girl said "that's awful" and another said "that's tasteless". While I agreed the commercial wasn't a.) funny or b.) effective and so c.) good - it wasn't for the same reason. Obviously they didn't use real babies, but these twenty-something girls' maternal instincts were so strong that they couldn't shrug off a simple (albeit not funny) joke. I have no such proclivities about babies. I think that maybe those women are the types of people that outsource their higher level thinking and will eventually develop into the types that boycott movies that aren't endorsed by the ASPCA/Catholic Church/MADD/whatever other institution they allow to dominate their thoughts and opinions.
The internet has probably allowed our society to have more divergent opinions then ever before. I say this because everyday I read articles and blogs by people that agree with me, which indulges my confirmation bias. Finding people who agree with you isn't hard anymore. The effect is that I feel surrounded by like-minded people despite the fact that those who are actually surrounding me may not share those opinions. Before the internet if you wanted to be up-to-date on events you had only one or two providers of newspapers in a city, only three nightly news shows and if you wanted to debate then you had to settle on whoever was at the local bar. Now you can get the news from the people that filter it through your preferred shade of glass and you can debate with people that already think like you. I wonder if this is the type of mechanism that is leading to outcomes like this article from this weekend calling Obama the most polarizing president ever.

Friday, February 4, 2011

Reason # 1977832 that I love Netflix

I've been a subscriber to Netflix since June 2007. This week I received my 500th disc through the mail. (FYI - it was "The Expendables" but I wish it were something more high brow to impress you.) I am a huge fan of Netflix and I have probably been responsible for at least a dozen people signing up, including my parents who joined last year.
I thought I knew all about Netflix, but by accident I learned something new last month. I always thought that if you place something that was on a short or a long wait at the top of your queue then you wouldn't receive any more movies until you were reached the top of a secondary queue for that specific movie. It probably would be that way if Netflix were run by Blockbuster. But thankfully for us the hard-working consumer they aren't. Instead of not receiving a movie at all, they skip to the next available movie on your queue and then, when the movie that had a wait time becomes available they send it to you whether or not you already have your maximum amount of movies checked out.  How awesome is that!?
So many businesses fall into the "we're the supplier so we call the shots" mentality that you are amazed when you come across a business that totally understands the consumer perspective.
The other consumer-friendly practice Netflix has is they send out emails to the tune of "hey, was the picture on that movie you watched last night kind of crappy? We think it was because our engineers noticed high demand so our quality suffered. If it was, click here and we'll refund part of your bill." Awesome.
They totally have me. I get so much consumer surplus, that is the amount of extra joy I get from not paying what I would, that if they doubled the price I wouldn't think about canceling my subscription.

Wednesday, February 2, 2011

Haiku - Calendar Spread

A calendar spread
Go long next month, short distant
Neutral market play.