Saturday, December 31, 2011

Quitting drinking for January

I don't have anything against drinking, I'm just getting sick of it. Plus its starting to feel like a crutch, if I'm bored and don't have plans one night I'll meet up with friends for drinks. I usually have a good time but I do it because its easy - I'm not really thinking about what I want to be doing. Mostly I want to make sure I'm living my own life with my own expectations and not someone else's. In all likelihood come February I will start drinking again but I'm hoping to gain some perspective on life as a result of quitting. Plus I'll save a lot of money that I'd otherwise spend at bars.

As I'm telling friends about this plan I've encountered a lot of different reactions - and as a result gained interesting perspectives on a lot of people. I've heard everything from "no way you can last!" and "why the hell would you do that?" to "I support your decision" and "I'll join you."

In future months I plan on making similarly radical life changes, either doing something I don't normally do or abstaining from something I normally do. In a way I'm doing 12 mini new years resolutions - should be a good year.

Next on my reading list

Interesting article in Forbes about a new book: What Capitalism can learn from the NFL

Martin compares the idea of maximizing shareholder value as trying to cover the point spread in the NFL rather than trying to win the game. Targeting the real market instead of the expectations market could do capitalism a lot of good. Too often management has the incentive to maximize short term profits at the expense of long term growth. What's worse is that this pressure often comes from the shareholders themselves. I just hope the book is as good as this article.

Funny or sad?

People complaining about what they didn't get for Christmas:

Complaining about not getting an iPad... seriously? Some people don't know how good they have it.

Saturday, December 24, 2011

The unseen and the unseeable

In the spirit of the season, the most reprinted editorial of all time, "Yes Virginia there is a Santa Claus"

The line which struck me the most, "Nobody can conceive or imagine all wonders there are unseen and unseeable in the world." That sums up my attitude toward religion, I view theists and atheists as similar in a lot of ways. How can anyone be so sure of their views? Even with something as universally true as mathematics, there are more unanswered questions than there are answered questions. Beyond that there are unanswerable questions (e.g. axioms). I prefer to take the Buddhist approach, arguing about unanswerable questions is a trap and the basis for dogmas. Although not having an answer makes life's path a little less clear I can't think of another way I could live.

Wednesday, December 21, 2011

Hot snow falls up?

I've been doing a lot of flying recently and I'm still amazed every time the plane successfully lifts off. Then all of a sudden this giant metal tube is flying through the air at 500 miles per hour. Pretty ridiculous. So I decided to do some research, maybe if I understand how this actually works I'd be more comfortable with it:

All I learned is that the people who design and build airplanes are way smarter than me. I suppose I can take comfort in that fact. But by that argument, Einstein believed in God does that mean I should too?

How freedom became tyranny

Interesting article in the Guardian applying the ideas of Isaiah Berlin's Two Concepts of Liberty to modern times. Berlin writes that there are two freedoms, positive freedom and negative freedom, "if the liberty of myself or my class or nation depends on the misery of a number of other human beings, the system which promotes this is unjust and immoral." In short freedom is not always good, the current generation of republicans view freedom as the solution to everything. However rather than further deregulation of finance I'd prefer to be free from exploitation and fraud.

Tuesday, December 20, 2011

Operation Perfect Hedge

Based on this article from Bloomberg it sounds like the FBI is using similar tactics to prosecute insider trading at hedge funds as they used for organized crimes and gangs. I hope somebody makes an HBO show along the lines of "the white collar wire." True most of these millionaire hedge fund managers aren't shooting people and selling drugs but the cost of their actions still totals hundreds of millions of dollars. The public does't get as upset because if you defraud millions of people for a few dollars each it's not as startling as defrauding an individual for a few million. That's what makes these crimes so difficult to prosecute the victims are spread out all of the world and its practically impossible to recompense them. To some extent this is the cost of investing, you're going to lose some money to fraud. As long as authorities keep these costs low investors will have faith in the system, if the insiders are allowed to run amok everyday investors will head for the hills.

Fox news makes a good point

Most of the time I view fox news as "news based entertainment" rather than actual journalism. But there was an article today (via google news) that caught my attention. Scientists in the Netherlands created a new strain of the bird flu virus that is more virulent and potentially capable of killing millions if it falls into the right hands. The author suggests that developing a virus like this is not very difficult if you have a basic lab and know how to do it. Compared to the costs of developing a nuclear weapon a virus like this certainly gets you more bang for the buck. This brings up a few questions. First, why was this research performed and should it have been allowed in the first place? Just because science can do something doesn't mean it should. Next, should these results be published? Regardless of whether the research should have been allowed or not, the information for how to do this is a matter of national security. We don't exactly publish specs for ICBMs. And finally, what can we do about this? As information becomes more widespread the people who want to do harm have more means to do so. This problem is the hardest to deal with. Do we become a police state? That seems to be way things are heading. Where do we draw the line? What price is too high to pay for freedom?

Friday, December 9, 2011

Reflections on Las Vegas

Now that I'm vacation again I have time to reflect on the last one. Vegas is an interesting place, part of it feels really fake - New York, Paris, Venice copied and mashed into a few square miles. On every block there are people dressed as Elvis,  Jersey Shore types, nerdy poker sharks, strippers and hordes of bachelorette parties in tiaras. But despite all this there is something very genuine about Vegas. It blends fantasy and reality so that you can be whatever you want to be and do whatever you want to do. Its liberating in a lot of ways and gives me a certain carefree feeling of confidence that's difficult to find in everyday life. It makes me talk to people I'd never talk to normally. It shuts down the analytically side of my mind and focus on what I want. So despite the massive hangover my trip was very meditative in a sense.

Monday, December 5, 2011

Anti-war = Pro-terrorism

Back in 2002 the FBI used terrorism to justify spying on people attending an anti-war rally in Pittsburgh. Later on the Inspector General called it "an ill-conceived project on a slow day." So apparently the government can label anything terrorism and use that as justification to violate the Constitution... I hope I don't end up in jail for the rest of my life without trial because its a slow day at the FBI.

Friday, December 2, 2011

Defense Authorization Bill Part 2

What do warrants, due process, trials by jury and inalienable rights have in common? They're soooo 1789 and apparently the Senate thinks they need to go.

I don't doubt that the Senators who voted for this bill have good intentions, they want to make it easier for our military to protect our country from a widespread enemy. But our current Congress has proven repeatedly that they are incredibly short-sighted. Do they really think we'll never have a government that might try to abuse this power? Jon Corzine (former Senator) might soon be going to jail for a billion dollar fraud at MF Global. Rod Blagojevich (former Governor) will hopefully be going to jail soon for trying to sell Obama's Senate seat. And since most presidents are former Senators or Governors I don't want to give these guys such unchecked power. My only hope now is that the Supreme Court strikes this down and makes it clear to everyone in Congress - unless you amend the constitution the Fourth, Fifth and Sixth Amendments still apply to all Americans.

Monday, November 28, 2011

James Madison once said...

"If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy."

The last decade has been terrible of civil liberties in this country. Last I checked its been over 10 years since anyone died at the hands of terrorists in the US. We don't exactly have enemies knocking down the gates. I understand that extraordinary times call for extraordinary measure but those times are clearly past. But we're still holding enemy combatants without trial, we're still spending hundreds of billions nation building and we're trying to pass a new Patriot Act. Worse still, the latest National Defense Authorization Act has some scary stuff in it. The language is sufficiently vague that it could be used to justify jailing anyone anywhere in the world (including US citizens in the US) without due process. My heart sank when I read this:

At least Obama has threatened to veto the bill. I'm really glad McCain (one of the authors of the bill) isn't president right now.

Friday, November 25, 2011

My job

Good article from Chance Magazine pretty much sums up the work I've been doing for the last few years. It's titled Model Risk and the Great Recession.

Performance enhancing drugs

Forget EPO, cigarette smoking can increase serum hemoglobin and hematocrit levels, increase lung volume and stimulate weight loss. Ken Myers makes a pretty convince case in this paper while demonstrating the dangers of medical review literature.

h.t. Infectious Greed

Articles like this drive me nuts

The title definitely roped me in, Why We Spend, Why They Save. But the explanation is thoroughly unsatisfying, the author just lays all the blame/credit at the hands of the government. Though I don't doubt that government plays a roll in the savings/spending debate but he doesn't even offer another single explanation. What about the fact that its much more difficult to buy a house or get a mortgage in Europe? That's the biggest source of debt for most people and many young Europeans live at home or rent because its basically impossible to afford housing in the big cities. The demographics in Europe (higher ratio of old to young people) also favor savings. The author portraits Americans as materialistic, debt addicted and in need of government to save us from ourselves. Give me a break.

The one thing I did learn from this article is that I should stop reading op-eds.

Thursday, November 17, 2011

Congress is more popular than Fidel Castro

But less popular than communism, banks, BP during the oil spill and Nixon during Watergate.

Maybe we should just let banks run the country. Oh wait, too late.

Monday, November 14, 2011

The psychology of political parties

A great blog post from earlier this year discusses potential psychological roots behind extreme partisan politics. The title itself summarizes the argument: "Are liberals driven by a desire for novel pleasure and conservatives by fear of pain?" Its an interesting argument with some compelling research to back it up. The author clearly doesn't like the current state of partisan politics in the US (who does?) He argues that such extreme rhetoric on both sides really discredits the whole political process. Both extreme fear and affinity for change will lead us to make bad decisions. I also like the Buddhist plug at the end.

Friday, November 11, 2011

Wealthy Chinese want out and it has me worried

A recent survey found that half of Chinese millionaires are looking to emigrate.

They cite problems with government, pollution and over-crowding as primary reasons. Also it might have something to do with the fact that interest rates and investments are largely controlled by the state. The government basically mandates negative real return on savings. And if the government finds itself in a bind sometime soon and needs money guess who will be footing the bill? Yes they do have a couple of trillion in reserves but they've got a lot of bad loans on their books. And if they start selling any assets en masse they will depress prices and find they're sitting on a lot less than the full 2 trillion. In short a hard landing for the Chinese will be disastrous for the newly wealthy class there. So that has me thinking, what are they seeing that I'm not? The fact that so many Chinese are looking to take their wealth abroad has me worried about the prospects in the short / medium term. Official Chinese economic data is notoriously unreliable and even that data admits growth is slowing down. How bad can things get over there? Occupy Beijing could grind their economic machine to a halt.

If the wealthy Chinese want to come, I say let them in (after some background checks etc). Anyone who wants to get away from a communist regime is OK in my book. Plus there are some great deals on houses in California right now, plus they'll need cars and will probably take a trip to Vegas. Sounds like an easy way to generate a few billion in extra economic activity / tax revenue.

All Italy all the time

Crony capitalism is bad in the US but the Italians have it down to a science. The government routinely appoints the management at many of the largest Italian companies. In fact they arbitrarily change laws to entrench management! It appears the whole system exists to enrich the privileged and the connected and that system doesn't want to change. This sounds very similar to Wall Street circa 2007 - can Italy be saved from itself?

Thursday, November 10, 2011

Dr Doom was right / another one bites the dust?

5 years ago Nouriel Roubini (Dr Doom) was making all kinds of dire predictions, the housing market would collapse, the world would experience massive global recession and the EU would break up. Two for three, so far. Everyone called him crazy at the time, insisting he was a permabear. Now many of those people call him a sage. On his blog he wrote a detailed analysis of why in 5 years Italy (the world's 7th largest economy) could cause the collapse of the EU.

This is one of the best explanations of the EU's current problems that I've read - and it was written 5 years ago! Basically every problem he wrote about is now front and center. For good measure he also mentions problems in Greece, Spain and Portugal.

Sunday, November 6, 2011

Steve Jobs and Television

Steve Jobs once said:
When you’re young, you look at television and think, There’s a conspiracy. The networks have conspired to dumb us down. But when you get a little older, you realize that’s not true. The networks are in business to give people exactly what they want. That’s a far more depressing thought. Conspiracy is optimistic! You can shoot the bastards! We can have a revolution! But the networks are really in business to give people what they want. It’s the truth.
He makes it sound like something out of Brave New World. I don't think there's nothing wrong with TV intrinsically, there are certainly some fantastic shows out there. But when I was in New York I went through the list of some 300 cable channels trying to find the NFL game. Its unreal, there's a channel to satisfy any whim. Part of me thinks this is an incredible accomplishment of capitalism. Another part of me (maybe the Steve Jobs hippie in me) finds this terrifying. Are there really so many people watching this channel to justify its existence? The statistics on how much most people watch TV are quite mind blowing - 5 hours per day! I realize its a cheap and easy form of entertainment but I agree with Steve its kind of depressing.

h.t. Infectious Greed

In case anyone isn't feeling the urge to travel...

Then watch this video of time lapse landscapes, it is incredible!

Wednesday, November 2, 2011

What's the point of all this education?

School has been on my mind a lot recently. The cynic in me says school is mostly about taking a vacation from the real world. The economist in me says its all about labor market signalling, i.e. "this prestigious university thinks I'm awesome, so give me a job." The idealist in me says its all about the pursuit of knowledge and for the betterment of self and society. Reflecting back on my UofC experience it was definitely some of both - lets face it, few people major in Econ so they can make the world a better place. That is unless they're doing God's work as one of Lloyd Blankfein's acolytes.

An article by (economist) Alex Tabarrok gave me a new perspective. Maybe school is all about what you make of it. If you want a vacation you have plenty of opportunities to take easy classes and screw around. If you want to signal and network there are plenty of opportunities for that too. And if you want to become a better person that too is possible. So the question really shouldn't be "what can I get out of school?" but rather "what do I want to get out of school?" If I go into it without knowing why I'm doing it then it'll likely turn into an (expensive) vacation.

Tuesday, November 1, 2011

Bleeding Heart Liberals

So I don't agree with the sentiment of this article but the argument is one of my favorites. Most of those people complaining about income disparity and the 1% are actually in the top 1% of income earners in the world. What does it take to be in the top 1% worldwide - $34,000. Some people need to be reminded we're lucky to be complaining about such first world problems. I don't mean to discredit the argument of Occupy Wall Street, over the past decade Wall Street / Congress has been doing a lot to threaten our wealth and security. Certainly something a lot to change before we end up like Iceland or Greece. But I am always sympathetic to the view that when you look at a lot of problems in the US from a worldwide perspective they seem insignificant.

Friday, October 28, 2011

Alfred Hitchcock once said...

I'm not against the police; I'm just afraid of them.

The shooting of an Occupy Oakland protester by the police yesterday and an article from HuffPo last month really got me thinking about the police and freedom. There is a fundamental trade-off between safety and freedom and I'm starting to worry we've gone too far into the safety camp. According to this article 90% of cities over 50,000 people have SWAT teams. Do cities this small ever really need to use force this drastic? There are billions in counter-terrorism funds floating around and no accountability in the DoD - they flat out don't know where the money goes. Apparently what happens is that little rural towns end up with tanks and machine guns. Do we really trust all these towns to keep these weapons secure? Isn't it more of a risk to spread deadly weapons all around the country?

Thursday, October 27, 2011

Time for a new career?

According to physicist Jonathan Carter nearly any model calibrated to real life data will yield awful predictions. Though I'm not sure if he's advocating making predictions based on no data instead?

Also I wonder if anyone has written an article about "why scientific american articles are always wrong." That might give me some comfort.

Tuesday, October 25, 2011

Book of Mormon coming to Chicago

YES! Its sold out forever in NYC, hopefully the bigger theater in Chicago will make tickets easier to get.

Groupon Bubble

Funny how economics works, someone comes up with a great idea makes a lot of money, everyone copies that great idea, all of a sudden the original idea is no longer profitable. There are red flags all over groupon, a constantly shrinking IPO, old investors bailing as new ones come in, questionable accounting practices and big payouts of the executives. This does not sound like a company on firm financial footing. One line from this article in particular stuck out - "[Groupon is part of] an industry that is turning into the digital equivalent of junk mail."

Wednesday, October 19, 2011

SEC settlement with Citi

Today Citi settled with the SEC for nearly $300 million over a structured CDO deal. Seems like every bank is going to face these kinds of lawsuits.

What's interesting about this specific settlement is that it names an individual - Brian Stoker. Most of the settlements are very generic sounding and don't call out anyone. So of course I'm curious and I look him up on linkedin - turns out he's only 3 degrees of separation from me. Looking at his work history he went from VP at Merrill Lynch to Director of Structured Products at Citi and now he's an Analyst at some private equity shop. Ouch. Sounds like that structured products experience is a liability these days.

Friday, October 14, 2011

Maybe it just collapsed on its own?

Imagine if every bank in the US was guaranteed by the local/state government. I certainly wouldn't have my money in any bank from Illinois or California. Thankfully we don't have to worry about where our bank is located, our dollars are equally safe (or unsafe) anywhere. Europe isn't so lucky, a euro in a Greek bank is much less secure than a euro in a German bank. So of course people have been moving their euros out of Greek banks (among others) and into German banks. This forces Greek banks to liquidate assets and transfer the euros to German banks. So the big question on everyone's mind is do the Greek banks have enough in assets to cover all the deposits in their bank? At the rate they're are losing deposits we'll find out very soon just how big the holes in their balance sheet are.

h.t. MR

Paid Detail Unit

Unbelievable. For $37 / hour Wall Street bankers can hire a member of the NYPD, complete with gun, handcuffs and the legal authority to make arrests. I guess I shouldn't be surprised, Wall Street already owns Congress, the Fed, a private army is the next logical step. I worry about the Occupy Wall Street crowd, they may be in over their heads here...

To top it off these hired guns are indemnified by taxpayers. God forbid Wall Street be held responsible for their actions.

h.t. Big Picture

Wednesday, October 12, 2011

Remember Meredith Whitney?

Last year she predicting "hundreds of billions" in municipal bond defaults for 2011. So far she's waaay off, in the first half of the year there were $511 million of muni defaults. However that number is almost going to double today as Harrisburg filed for bankruptcy. Still a far cry from "hundreds of billions" but if it works out well for them maybe other heavily indebted municipalities will follow suit. There are certainly no shortage of those.

Tuesday, October 11, 2011

Slovakia to the rescue

One of the smallest EU members has been in the spotlight recently. Slovakia is the only country that didn't approve expanded powers for the European Stability Fund. The leader of one of their parties explained his position as:

"How am I supposed to explain to people that they are going to have to pay a higher value-added tax (VAT) so that Greeks can get pensions three times as high as the ones in Slovakia?",1518,790577,00.html

I'm glad someone is willing to make the hard choices. Greece has to default. If the problem is too much debt the solution isn't more debt. Of course the Germans and French will get their way somehow, but perhaps this will inspire others.

Thursday, October 6, 2011

RIP Steve Jobs

Only Steve's own words are fitting here. From his 2005 commencement speech at Stanford:

"You can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life."

"Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep looking. Don't settle. As with all matters of the heart, you'll know when you find it. And, like any great relationship, it just gets better and better as the years roll on."

"Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition."

Tuesday, October 4, 2011

Google - really cool or really scary?

Interesting line from an article I just read about Google:

"We are not Google’s customers, we are its product. We – our fancies, fetishes, predilections and preferences – are what Google sells to advertisers."

Its incredible how much data Google must have on me and everyone really. They know everything I've searched for online, everything I've looked at on my phone, all my email, they have maps of the entire world (with pictures!) and all the location based data they're collecting from my phone. On top of that they're working on getting access to every book in the world, building self driving cars and who knows what else - recording every conversation across the globe? Their business isn't search, its data. Maybe they'll even figure out how to automate the process of analyzing the data... in that case I should look into a new career. I wonder if Google is hiring...

h.t. MR

Sunday, October 2, 2011

So about that income tax hike

The personal income tax in Illinois went up from 3% to 5% this year, the corporate tax went up from 4.8% to 7%. Tough pill to swallow but I guess everyone needs to chip in to keep the state solvent... or so I thought. This one line was just depressing. "Illinois' financial condition continues to worsen, though arguably not as quickly as before." The state is still facing an over $8 billion deficit this year.

But in the grand scheme of things an $8 billion hole in a $117 billion budget isn't too bad. That is of course until you consider all the underfunded pensions and other off the book liabilities. Greece appeared to be in pretty good shape when they had Goldman Sachs cooking their books...

But what really scares me is the city's deficit, $650 million deficit from a $3.2 billion budget - a 20% hole. Can you imagine the city cutting 20% of spending on everything?

Saturday, October 1, 2011

California and collective delusions

Over the past few years Michael Lewis has written some of the best articles out there about the financial crisis. His latest on California is excellent as well:

The overarching theme is that we (the West) have developed into a society that sacrifices the future for the sake of immediate gratification. Until we reverse this attitude this financial crisis won't end, no amount of monetary or fiscal stimulus will help. If the problem is too much debt the solution isn't more debt.

Also this article made me really like Schwarzenegger.

Wednesday, September 28, 2011

How can I get funding for this kind of research??

According to a recent study at University of Missouri:

"It turns out that we still know we are making mistakes when intoxicated. We just don't care."

The whole article is worth a read:

Some more info about what alcohol does from lifehacker. This line in particular caught my attention:

"Substances such as cocaine and LSD work like pharmacological scalpels, altering the functioning of only one or a handful of brain circuits. Alcohol is more like a pharmacological hand grenade. It affects practically everything around it."

I don't know if all this makes me want to drink less or drink more.

Monday, September 26, 2011

I couldn't make this up if I tried

In 2014 a new city will be built in the middle of the New Mexico desert. It will have cutting edge infrastructure, state of the art security and enough room for 35,000 people. However it will be populated entirely by robots:

And since everything inevitably comes back to the Simpsons:

"The wars of the future will not be fought on the battlefield or at sea. They will be fought in space, or possibly on top of a very tall mountain. In either case, most of the actual fighting will be done by small robots. And as you go forth today remember always your duty is clear: To build and maintain those robots."

Blame the investors

Martin Wolf has a great post about how high target returns on equity are creating financial instability:

Banks love using the line "without high returns (and consequently leverage) we won't be able to attract equity investors." Bullshit. What will happen is their stock price will go down until its attractive to investors again. Every equity investor wants the bank to take as much risk as possible. They have unlimited upside and limited liability so they can't lose more than their original investment amount. What typically keeps the banks in line are creditors, they receive a fixed return on their investment but can still lose everything if the bank really screws up. Unfortunately in our Too Big To Fail world the creditors can't lose money either. If we bail out bank creditors (who are often other banks) there is no market check on the risky investments of banks. Without this system of checks banks will take as much risk as they possibly can, staying one step ahead of regulations. Banks are supposed to be prudent stewards of capital and risk management is supposed to be their primary business. But now our banking system is less stable than before, perhaps banks have better capital positions but these won't last long as equity investors demand higher returns (more risk).

I have this comic on my wall at work:

Saturday, September 24, 2011

World best vs. world record

Last month the IAAF declared that a woman's time only counts as a world record if its in a woman's only event. I don't get it, I don't understand their logic at all - especially since at many races the elite women start and race mostly separately from the elite women. These writers for the NYT clearly agree with me:

What's next, a world record only counts if there are no spectators? But then if a world record falls and no one is around to see it... If this is the way the sport is heading then maybe women should be banned from men's races entirely, those booty shorts are just waaaay too distracting.

Wednesday, September 21, 2011

Over 40% of 15-24 year old Spaniards are unemployed

Some pretty depressing numbers from the Economist this month:

By comparison youth in the US are doing great with an 18% unemployment rate and Germany is basically a paradise at 9%. And this article only looks at developed countries, around the Arab world the rates are astronomical. Are we creating a generation that will remain only marginally attached to the work force for their entire lives? School can only substitute for work so long because there's a lot that you can only learn on the job, plus there's a limit to the debt a person can afford to take out. The article points to Germany's widespread apprenticeship program as a reason for its success. Similar programs have had limited success in the US, our mentality has always been a little more 'do or die'. And if that's the way people like it I'm all for it. But if we're letting our youth fail at such high rates, why do we insist on bailing out our bankers? I'm just looking for a little equality.

Monday, September 19, 2011

Inflation: the cause and solution to all of life's problems

Inflation rates are running about 4% annualized right now, yet the Fed remains largely unconcerned. Brazil and China are running inflation rates nearly twice as high. This afternoon the US 30 year treasury rate is 3.18%, resulting in a -1% real yield (approx. interest rate - inflation rate). In fact we're seeing negative real yields all around the world. This is bad news for anyone trying to save money since they're essentially losing money every day. Yet for the past year central bankers around the world say this inflation is temporary and will soon subside, but how long before temporary inflation is no longer temporary? And now some members of the Fed have started supporting higher inflation rates as monetary policy. Uhhh... what?!?! The Fed's primary mission is to maintain price stability - now they're coming out and saying they want to promote price instability. Of course Volcker has called them out on it in the NYT:

People have come to expect too much of the Fed and as a result the whole institution has become too politicized. This last happened in the 70's with BAD results, the whole reason we have a separate Treasury and Fed is so that the people who spend money aren't the same ones who print the money. I'm not sure this is the case anymore. Monetary policy is no panacea, good monetary policy does not stimulate the economy it lets the economy grow on its own. On the other hand bad monetary can really mess things up by distorting incentives for saving and/or lending. Maybe its just the Austrian Economist in me but the Fed isn't supposed to give the Treasury a blank check, the Fed isn't responsible for maintaining full employment and most importantly the Fed isn't there to bail out irresponsible banks. It is a great institution with a strong history of success, but over the past few years it has overstepped its bounds - illegally some might argue. However we don't need to end the Fed, we need to keep it independent and outside the sphere of politics.

Friday, September 16, 2011

0's a percent / when loan guarantees go bad

Until recently almost no one knew the company Solyndra, now they're everywhere in the news. The solar panel manufacturer filed for bankruptcy two weeks ago, apparently they couldn't keep up with the cheaper Chinese manufacturers. Normally a bankruptcy like this wouldn't be a big deal, except for the fact that two years ago the administration had approved over $500 million in loan guarantees for Solyndra. That's right you and I are on the hook for the debt of this company. Now there's an investigation as to whether Solyndra's political connections rushed the loan approval - bad news for Obama.

Why is the government guaranteeing the debt of companies like this? And to this amount? I suspect its because then they can create jobs and dole out favors without any upfront cost. But these guarantees create HUGE off balance sheet liabilities (see Fannie and Freddie). If the government wants to spend money promoting green energy that's great but they shouldn't be playing these accounting games. I'm curious to see what the FBI uncovers.


I'm a big fan of lists, both reading other peoples and writing my own. As a result I just spent the last hour reading through a list of the best Chicago websites. I found some great sites on here that I'd never heard of before:

Speaking of the world's largest employer

The war in Afghanistan started almost 10 years ago. This is the longest war in American history, unbelievable. What a disaster. Do politicians not understand the sunk cost fallacy? Our goals are too ill-defined. How can we win the war if we don't know what we're fighting for? We certainly deposed a horrible and oppressive regime, but has daily life for Afghanis really improved? Here's the article that got me thinking about this:

The cost of the war in Afghanistan has already exceeded $400 billion. Think of all we could have done with that money. Without tangible progress I say we cut our losses and spend that $400 billion over the next 10 years on education and infrastructure back in the US. Or you know start paying off some of that $16 trillion we owe.

Tuesday, September 13, 2011

Countererrorist Modeling Group?

Just in case I get tired of modeling delinquent borrowers I could probably move on to supercomputer powered counter-terrorist data mining:

Obama's jobs program

This week Obama proposed a $447 billion plan to create jobs. The two big items in the plan are more tax cuts and more aid to states. Most state governments are in miserable long term shape (see Illinois). If the problem were simply liquidity then I'd support the aid but many states are insolvent long term. They've promised more in pensions, benefits etc than they can possibly afford to pay. The aid only puts off the day of reckoning - this seems to be a common theme of late. The tax cuts will certainly encourage the hiring at the margin, but at what cost? We have had limited success getting the economy growing with the existing tax cuts and monetary easing, why do we think more of the same is the solution? Furthermore the federal government is pretty bad at cost benefit analysis because it faces limited consequences if it screws up. If a company malinvests billions they go bankrupt, everyone who invested loses lots of money. If the government malinvests billions someone might get fired, but more often than not no one even checks to see if the investment is having the intended effect. James Bovard writes in the WSJ about the historical performance of job training programs (spoiler: they have a very poor record)

Think like a statistician

This is probably the coolest example of statistical thinking I've read about:

Selection bias is a huge problem in statistics and comes up all the time with clients. I've had several projects tank because we determined the data was non-random. Wald's solution to the non-random data problem is just brilliant.

h.t. MR

Monday, September 12, 2011

Greek default almost certain

Market prices are implying that Greece has a 98% chance of defaulting over the next 5 years:

Of course this has every asset market jittery. Who's next? How much longer can Ireland or Portugal survive? How bad will the losses be at French and German banks? Then of course there's Spain and Italy. Scary stuff. Europe really dug itself into a hole here, the periphery borrowed more money than they could afford to repay. Normally this wouldn't be a big deal, countries default on their debt all the time except that a lot of the money was borrowed from French and German banks. So now the Europe's peripheral problems are core problems. The French and German banks are already under-capitalized due to all their real estate losses and according to Basel II they don't need to hold capital for sovereign debt. I guess no one asked how the Greeks were actually spending this money. Michael Lewis  wrote a great article about this in Vanity Fair last year:

Thursday, September 8, 2011

The latest threat to the economy: productivity

Its rare that I'll read an article and agree with every word but this morning I found one:

There's plenty of blame to go around for why the middle class has been struggling but the author isn't out to promote a particular agenda. He simply identifies the critical problems we're facing: health care and education. We are able to provide everything else with stunning efficiency, but health care and education remain slow, expensive and for millions of people - ineffective.

Also while reading this article I became more convinced of my view that the current crisis is really just a part of a decade plus long crisis with labor. The work force hasn't become educated fast enough to adapt to new technology. As a result the people who have adapted have seen their wages rise rapidly (due to insufficient labor supply) while people who haven't adapted have seen their wages fall (insufficient demand for their labor). No doubt the industrial revolution saw similar displacements but once the work force caught up economic growth skyrocketed.

Wednesday, September 7, 2011

Another weekend another music festival

This past weekend was my 4th music festival of the summer (Pitchfork, Lolla, Outside Lands). On Friday I went (mostly) to see David Guetta and on Sunday night I went to the ATB afterparty at the Mid. Both shows were very solid overall, Guetta closed with a remix of Club Can't Even Handle Me that blew me away. ATB played some MGMT and Robyn which was much appreciated by all the hipsters in the crowd.

I'm a relatively recent convert to electronic music but after creating a David Guetta Pandora station a few weeks ago I just had to buy the ticket. I feel like he has his hand in nearly every song that I recognize but don't know the name of:

Monday, September 5, 2011

Time is never time at all

Its incredible how little we understand about time. Its so fundamental to everything but every time I try to think about it I get hopelessly lost. This guy sums up some interesting "facts" about time:

Remember when was a porn site? It must have been at least 10 years ago, I remember doing research for a social studies paper in 8th grade and stumbling upon it by accident - I wonder how many others did too. Now there's a new .xxx domain coming out in the next couple of months, are we going to see a site? The company which is running this domain is asking for $100-300 per year per url from companies to prevent someone from buying trademarked sites like I'm not sure how legal it is for them to do this but something feels wrong about it:

Sunday, September 4, 2011

The physics of tennis

As I was reading about the US Open I stumbled across this article on the physics of tennis. I always knew the playing surface mattered but I never knew why, interesting stuff.

Thursday, September 1, 2011

A culture of entitlement

Selfishness and narcissism are certainly not new, in fact the very word narcissism comes from the ancient Greek myth of Narcissus. But it does seem like there's a bit of a entitlement epidemic going around - for example the guy who yelled "get the government out of my social security!" at one of those town hall meetings in 2009. And this is peanuts compared to the AIG executives - they were guaranteed hundreds of millions for nearly driving the country in bankruptcy and they believed they deserved every cent! In this article the authors describe how this culture is affecting children.

This article definitely changed my feelings about how to teach children about money, respect and family obligations. I couldn't help but think of Kant's moral philosophy when reading this - the only truly good acts are those done for the sake of good itself. How soon is too soon to read Groundwork of the Metaphysics of Morals?

Swapping Debt for Equity

Under Chapter 11 bankruptcy frequently creditors agree to reduce the principal in exchange for equity in the newly created company. A couple of years ago I had this idea - why not apply the same principle to homeowners. The banks get (future) equity in the house and the borrowers get principal reductions and the housing market might even recover. Sounds like a win-win-win proposition. Clearly this blogger agrees:

But the more I thought about it, the more problems I find with the idea. Why would any borrower stick around once there's any equity in the house? As soon as they can sell the house and pay off their mortgage they would, borrower has a clear slate, bank gets nothing for their equity stake. Nin-Hai proposes that there much be a certain dollar amount of equity in the house before the person is allowed to sell. But it seems like those types of clauses would be a nightmare to enforce, plus it locks the person into their house for even longer. Also what bank wants to take on more house price risk? So I think its an interesting idea but ultimately impractical.

Monday, August 29, 2011

21st Century Indentured Servitude

In Orange County 1 in 6 homes is worth less than the mortgage outstanding on the home. That's 1 in 6 families who can't move, can't refinance and are throwing good money after bad. For folks who bought in 2005-2007 it will take decades for house prices to recover. These people aren't building equity in their homes, they made a bad decision at the peak of the bubble, took on too much leverage and ran into some bad luck. That seems to be a common theme these days.

How can the economy recover when so many people are held hostage by their homes, their student loans or their credit cards? Yes, as a country we took on too much but that happens. The US has always been a debtor friendly place, bankruptcy laws are very forgiving compare to other countries - just look at all the abandoned cars in Dubai:

But in recent years the US has become far less debtor friendly - at least for consumers. Student loans cannot be discharged in bankruptcy, they will garnish your wages, your Social Security, whatever they can get their hands on. Mortgage balances cannot be reduced in bankruptcy either - you either pay off the full balance or you walk away from the whole thing and lose your house. Imagine if corporations were subject to the same laws? It would be a disaster! Why do we subject families to such hardship but exempt corporations? We screwed up, give us a chance to fix it. This guy theorizes that we're actually in the middle of a super-crisis that started in the '70s. I'm not sure I buy it but he raises a lot of good points:

Sunday, August 28, 2011

Bank of America's latest problem - too much money

Due to all the turmoil in Europe deposits are leaving European banks and finding their way into US banks. However US banks don't want this money, with interest rates at 0 its impossible to find profitable ways to invest it - they may even be losing money on these deposits. Plus no one thinks these deposits are going to stick around for long so banks unwilling to invest them in longer term assets.

All this is making me wonder - are low interest rates the cure or the disease? Maybe they need to start considering alternative investments. Perhaps a Scrooge McDuck themed amusement park?

Saturday, August 27, 2011

Steve Jobs Retires

There are few people who personify their companies like Steve Jobs. The only person who even comes close is Warren Buffett. Steve's resignation from Apple is definitely a blow to the company, this guy is truly a visionary. As this article put it "Steve Jobs is perhaps the most successful brand manager in history, and he did it, paradoxically, by embracing the precise corporate values to which the Apple brand identity is ostensibly opposed."

Like Google's "Don't be evil" culture, Jobs has created something very unique at Apple - I hope it can continue without him at the head.

Wednesday, August 24, 2011

Kill kill kill kill... the quants?

Quants have been taking a lot of heat in recent years, first it was all those CDOs that went bust, now every blip in the market is blamed on high frequency traders. Certainly there's some truth to it, but this guy is really taking it too far:

This guy makes it sound like there was no such thing as volatility before HFT came along - come on! First of all the quants do the research and make the models, they're not the ones who decide to leverage 30 to 1 putting the financial system at risk. Second, who is really hurt by a 6% move in the stock market? If you can't stomach the occasional 50% loss then you shouldn't be investing in stocks anyway.

Something from Neuromancer or The Onion?

This article sounds like something out of The Onion:

As part of an anti-US propaganda ad the Chinese accidentally showed this program where you can select an IP address and hit the "Attack" button. In the ad they show the address for the University of Alabama. Unreal.

ht big picture

Tuesday, August 23, 2011

Food Stamps, Ritalin and the Middle Class

15% of the US Population is on food stamps. That's 46 million people, at a total cost of $68 billion last year. These statistics are pretty shocking to me:

In global terms even a family of four in the US living at the poverty line ($21k/yr) is middle class. But as the middle class emerges worldwide they are competing with the middle class in Europe and the US. I suspect this dynamic will come to define the first half of the 21st century. There's no doubt that the middle class in the West is getting squeezed - how do we adjust to the new global world? Of course we could turn to psychotropic meds - Acceptol always sounded pleasant. But only the wealthy will actually be able to afford these meds; while 15% of American families worry about putting food on the table, 15% of children in the US are taking some kind of psychotropic meds. Something feels wrong about this:

Monday, August 22, 2011

Religion, Money and Politics

The three things you're not supposed to talk about. Oddly enough these are three of the most interesting things to talk about. Before I went to the UofC I didn't talk much about any of them. At the UofC I definitely learned to talk a lot about religion and politics. In general I think I'm pretty open minded, part of me even sympathizes with Kierkaard's leap of faith argument:

To paraphrase Voltaire, I may not agree with your opinion but I'll defend to the death your right to express it. As long as we agree on that point there is always something I can learn from others' beliefs and opinions. But money is the last of the three that I'm still not entirely comfortable talking about. In this article Daniel Indiviglio argues that public salaries would make workers better off. I've heard others make similar arguments before and in part I agree with them. However his lack of empirical evidence makes me a little skeptical - what if public salaries just made everyone envious and consequently less productive? On the other hand this might be a solution to the massive discrepancies in salary between workers and senior management.

Sunday, August 21, 2011

Apple is worth more than the European banking system

I'm not sure whether this says more about how successful Apple has been or how dire the situation in Europe is:

Its no longer a question of whether the European banks are solvent but rather how insolvent the European banks are. The situation is making a lot of people (and the markets) very anxious. The European banks are HUGE:

A run on the Euro banks could be disastrous, no one has enough money to backstop them.

Friday, August 19, 2011


A group at MIT has developed a new drug that can, in theory, cure any viral infection. So far they've tested it on 15 different viruses in mice with 100% success... wow. Besides the millions of lives potentially saved the best part is the name.

Its incredible how we're capable of developing drugs like this when over a billion people still don't have access to clean water. How many lives could we save by getting these people access to clean water? Of course its not as simple as that, lack of clean water is usually symptomatic of other bigger problems. War, oppressive government etc.

Thursday, August 18, 2011

Tit for tat

Today the justice department announced that it is investing whether S&P improperly rated mortgage backed securities during the house bubble. Uhh... ya think? Over 90% of the AAA mortgage backed securities issued in 2006 and 2007 have been downgraded to junk.

AAA is supposed to mean no credit risk - the issuers and rating agencies knew these ratings were bogus from the start. But historically the agencies have been protected by the 1st amendment because these ratings are officially opinions. No wonder the market for these securities is dead, investors have lost their trust in anything and everything securitized.

Some folks are claiming this investigation is retaliation for the recent downgrade of the US. Maybe it is, but I'm all for it. I agree with S&P, the US is not AAA anymore but I also agree with the justice department - the business model of the rating agencies was to outright lie to investors. We need to shut these guys down and replace them with institutions that can be trusted.

Wednesday, August 17, 2011

The Paradox of Choice

The idea that too many choices is detrimental to our happiness is not new. Barry Schwartz wrote about this idea in his book Paradox of Choice - Why Less is More.

His premise is that more choices lead to psychological stress because it isn't easy to (1) figure out what we want and (2) weigh the pros/cons of our various options. I've spent a lot of time recently furniture shopping and I've definitely experienced this stress! If the apartment were already furnished I would probably be a lot happier overall. I was also reminded of this book when reading an NYT article on decision fatigue:

The example of the parole board is quite surprising. Take 3 prisoners who committed the same crime and are similar in all other respects, one has a hearing at 9 AM, the other two much later in the day. The one with the early hearing is much more likely to get parole than the other two. The whole article is pretty interesting and certainly has some public policy implications.

Rock, Rock, Rock

There was a period of time in high school where I was exceptionally good at rock, paper, scissor. Impossible? Not according to these guys:

I did utilize a few of the strategies they mention, in particular I'd tell people ahead of time what I'm going to throw or do the same thing three times in a row. Unfortunately these skills have not transferred over to poker.

h.t. big picture

Tuesday, August 16, 2011

5 years ago there was no iPhone

There have been a few inventions that have really revolutionized my life (so far), smartphones are one of them. I've only had one for a little over a year but its completely changed the way I manage my life. A lot of people don't realize (me included) how quickly technology is advancing and how the rate at which its advancing is also speeding up. Inventions like this one just blow my mind (thanks sis):

On a related note Kevin and I had a discussion this morning about where the next bubble will be. I'm pretty sure it'll be in biotech. In Western countries most people have all of their basic needs met and there's a limit to how much stuff we want to consume. So where is all that extra income going to end up? My hypothesis is that we will be looking for ways to extend our lives and improve our health. Thus I believe we're most likely to see a positive "black swan" in biotech. I'm also using this logic to justify my recent investment in XBI.

P.S. I googled black swan and this is what came up - couldn't resist.

Sunday, August 14, 2011

Outside Lands

Wow, great festival! Three incredible days of music and wine in one of the most scenic parks I've ever visited.

Friday: MGMT was solid. Big Boi never actually played - instead we got 15 mins of Dave Chapelle standup. The Shins sounded great, it was their first show in almost four years. They've coming out with a new album and hopefully will be touring again soon.

Saturday: The Black Keys were the best surprise of the festival for me, I always liked their studio stuff but they were even better live - plus the crowd was really into it. Muse closed the night with an impressive show. I've only recently become a Muse fan but I will definitely be seeing them the next time they're in Chicago.

Sunday: Major Lazer was ridiculous as usual and the Decemberists were fun. Of course this day was all about Arcade Fire and they did not disappoint. Just before the encore they sang a few lines from "All My Friends", I was melting - it was just a perfect moment. Though I was probably one of few people in the audience who recognized it.

Saturday, August 13, 2011

Casey Stengel or what it all means

I named my blog after a quote by baseball player / manager Casey Stengel. The full quote is "the trick is growing up without growing old." When I first read it I thought it was a great philosophy for early adulthood. This guy definitely knew a thing or two about life:

Friday, August 12, 2011

How do we ration healthcare?

That's the question no one in the government is asking. we are capable of providing a lot more care than most people can afford. But that's fundamentally no different than anything else - we can build nicer houses and fancier cars than most people can afford. So how do we decide who gets the mansions and the ferraris? The debate right now is like arguing over the paint job, we're still pretending everyone can get a sports car. Obamacare is a step towards rationing but I don't think it goes far enough to actually be effective - I fear we're replacing one broken system with a different broken one. That is assuming it won't be overturned by the courts - today yet another state ruled the individual mandate unconstitutional.

Personally I don't believe a single payer system is best - there's nothing wrong with high costs as lost as they result in high value. To me innovation is more important than cost savings and I'd rather have the most advanced system rather than the most cost effective system. Now if only more doctors/hospitals/insurers could start using technology effectively. Like this guy:

Thursday, August 11, 2011

UK Riots or the end of the welfare state?

At first I didn't pay much attention to the UK riots, police kill some poor minority and people start flipping out - it happens. But as I've read more about it there's clearly a lot more going on. This article paints a pretty bleak picture of the situation there:

Although I don't agree with everything this guy writes I do think he brings up a valid point - the welfare state breeds an underclass. Because of globalization for a certain percentage of the population education and work no longer makes sense, if they can earn a middle class income (by world standards) then that's what they're going to do. No advanced economy has figured out how to solve this problem, I get the feeling this is just the beginning.

Tuesday, August 9, 2011

Tuesday morning reads

How much of our expenditures are spent on goods and services made in China? Even I was surprised by how low the number is - only 2.7%. We're not wealthy because China is making cheap goods for us, we're wealthy because even for all its flaws our system works the best.

Ever since reading Freakonomics I've had a bit of an obsession with reading about prostitution. This article is titled "Why do women become sex workers and why do men go after them?" 

So I've decided to start blogging

There's a lot going on in the world and writing helps me think about it. So here goes.

Quite the weekend, the US lost its AAA rating - what does this mean to me? Basically nothing, except the opportunity to pick up some equities on the cheap. As Warren Buffett says "Be greedy when others are fearful." The US has the printing press, inflation risk yes, default risk no. This pretty much sums up how I feel about the matter.

Now the good news, lolla definitely surpassed my expectations. After last year's lineup this year's lineup was a bit of a disappointment so I only went Sunday - but what a day! Flogging Molly was a blast as always and Deadmau5 was unreal, the music, the lights, the torrential downpour made for a once in a lifetime experience. Thousands of wet, muddy and dancing people all in one place and we couldn't be happier - it was incredible.