Friday, May 21, 2010

Extended Friday Frivolity

I will have a few points to make but I am pretty sure I said all I wanted to and more in yesterday's post and the comments section. The blogosphere is a great thing and ideas and opinions can vary or even be directly opposed. The main thing is to keep reading plenty and keep thinking.

Today's Market
The markets were a bit ugly first thing in the morning and then found footing. OPEX usually wraps up Thursday evening with residual action at Friday's open. I figured no one would want to be caught short or stuck in certain positions heading into a weekend that my bring some kind of headline risk.

Right before the close the indices ramped up big on minimal volume once again. Whether this is banks trading shares ever higher back and forth raising bids and then banking the gains in the books for the day or just a lack of selling orders as everyone went home for the weekend is open for interpretation.

Perspective Matters
As a "Zero Hedge Head" I have to admit that the site features off beat market information, hilarious headlines, and brings to light some of the inner workings of the markets. I read it daily and often will link various items. I would offer that at times the crew over there gets a little out of hand with sensationalism and also could benefit from follow up work before going to post. Two quick examples.

TED Spread
This no forgotten measure of inter bank stress used to be held as proof the banking system was in trouble back in the collapse. It has been on an uptrend as of late, and the Zero offered this article and graphs to portray a big surge in the TED spread.

Now I used to watch this indicator quite a bit so I knew it was still really, really low but elevated for recent times. Jesse at the Cafe has a more broad look at this measure and it should put things in perspective. Last time I looked 450 (peak reading) is more than 10 times bigger than 35.

Senator Response Letters
In the piece "The FED's Racket Exposed" the Zero includes two letters from senators to readers concerning the FED head Bernanke's reappointment to his position. The letters read just as we have been told by officials on the record:
Senator Mikulski response to a voter on why she voted for Bernanke included:
I was advised that rejecting his nomination would cause markets to nose dive, which would hurt retirees and families saving for their future. I am not enthusiastic in my support. But I think Mr. Bernanke understands the job that he still has to do.
Remember "Tanks in the Street" if TARP was not passed? This follows the same threat pattern.

Tom Harkin was not overly scared and wrote to a voter of his thus:
While I have heard the concerns of many that the failure to confirm Mr. Bernanke would have damaged the financial markets and jeopardized our economy recovery, I do not believe that anyone, including Mr. Bernanke, is too big to be replaced. We should not hold our economy hostage to the Wall Street threat that total economic collapse is the sure result of not doing everything they want.
Again, follows the same line of thought.

So what's the problem? A great follow up would have been to get both senator's staff to confirm these letters were indeed sent by their offices. In the day and age when fake memos (remember Dan Rather?) can be made up it would add weight with a confirmation. I would also feel a bit uneasy about the line "jeopardized our economy recovery" which should have read "economic recovery" not economy. Still, I always miss type everything (if you read the comments you know this!) but that alone would have demanded a confirmation via the senator offices. Sloppy details are a new focus of mine, HA!

Mish has some funny stuff; some letters from CONgress staffers (not a miss type) concerning financial terrorism that is too funny. Mish also backs it up with a chain of evidence.

Friday Night Entertainment
Ok, I got a little worked up last night but through the force I have been able to re-center and get focused on what is important, Friday Night!

Bringing Sexy Back
Now some blogs use the promise of sexy ladies to attract viewers. I would never, ever resort to such an attempt to create more Google search hits. Never.

I offer true sexy, the sexiest engine of all time (in my opinion!) the GM L-98 small block V-8:

Those curved intake runners are really something! I did not say best engine (great low end torque but the motor ran out of power in the higher RPM bands) just the best looking.

Picture Pages
Visual cues to get you laughing.

One of these things is not like the other:

Wow.

Well, I guess there is a difference between Walmart and the Dollar store:

A great read.

We all love the animals!

Too cute:
funny pictures of cats with captions
see more Lolcats and funny pictures
AWEEEE!

Tales of the glory days:
funny pictures of cats with captions
see more Lolcats and funny pictures
Just like "Hoosiers"!

Items of Interest
Some stuff you may not be aware of.....

-How they filmed the old "Star Wars" crawls before technology.

-Kryptos still unsolved, but there may have been an error in the making of the display that the designer cannot figure out. Oh well.

-Mackinac Island was a Wiki featured article this week, and for those with sharp eyes, it was the setting for the film "Somewhere in Time".

Rock Blogging
It is now time to get the tunes going for a weekend sendoff.

Reader Moneta had some great observations this week and thus his request leads off the night. I had 3 to choose from so here is Men at Work and "Land Down Under":

I love this song.

Via loyal reader Gawains I found the song "Willin" but on the sidebar I saw Linda Ronstadt do the tune and well, here she is:

Very nice.

Inside joke with my friend from Michigan, The Go-Go's with "Our Lips are Sealed":

All my best.

The lead singer of Depeche Mode, David Gahan was solo for a while and the song "Saw Something" is really a nice piece of work:

Nice!

Two more and that's all!

You know I am going to heavy it up! Try out "Balls to the Wall" by Accept:

Not bad!

Last call! You know what to do.

A YouTube post by some guy on his Top 20 Metal Songs was pretty good and his number one, while I would disagree, was not bad at all. Take a real ride, lyrically and musically with Iron Maiden and "Hallowed By Thy Name" (live version only way to go!):

"The sands of time, for me, are running lowwwwwww, running loww Yeahhhh, Yeah yeah!"
Great vocals and everything else.

Have a good night.

21 comments:

watchtower said...

That TPI 5.7 looks like it could be a propulsion unit for some kind of advanced space craft.

getyourselfconnected said...

Ever heard of the Bussard Ramjet?
http://en.wikipedia.org/wiki/Bussard_ramjet

Not quite "Tau Zero" but ok.

That motor (L98) is the best looking ever.

getyourselfconnected said...

A nice overview on inflation and the old rules not really in play here:
http://www.zerohedge.com/article/feds-voodoo-economics

GawainsGhost said...

Well . . .

FOREWARD

On the assumption that my technique is either complicated or original or both, the publishers have politely requested me to write an introduction to this book.

At least my theory of technique, if I have one, is very far from original; nor is it complicated. I can express it in fifteen words, by quoting The Eternal Question And Immortal Answer of burlesk, viz. "Would you hit a woman with a child?--No, I'd hit her with a brick." Like the burlesk comedian, I am abnormally fond of that precision which creates movement.

If a poet is anybody, he is somebody to whom things made matter very little--somebody who is obsessed by Making. Like all obsessions, the Making obsession has disadvantages; for instance, my only interest in making money would be to make it. Fortunately, however, I should prefer to make almost anything else, including locomotives and roses. It is with roses and locomotives (not to mention acrobats Spring electricity Coney Island the 4th of July the eyes of mice and Niagara Falls) that my "poems" are competing.

They are also competing with each other, with elephants, and with El Greco.

Ineluctable preoccupation with The Verb gives a poet one priceless advantage: whereas nonmakers must content themselves with the merely undeniable fact that two times two is four, he rejoices in a purely irresistible truth (to be found, in abbreviated costume, upon the title page of the present volume [is 5]).

e. e. cummings (1926)

getyourselfconnected said...

Jake at EconomPic has a great "Master of Puppets" live show you may want to see:
http://econompicdata.blogspot.com/2010/05/econompics-of-week-52110.html

Rock bloging; the only way to reclaim the world!

getyourselfconnected said...

WOWZA Gawians!

I think that entry is over my head! Great prose though!

GawainsGhost said...

It's not too deep if you understand where he's coming from. The word poet derives from the Greek poeia, which means "to make". Thus, a poet is obsessed and driven by making. What is made is irrelevant. It is only the act of making that matters.

As to the mathematics, I get a kick out of confounding math minds. 1 + 1 = ? It depends on what you're talking about. For example, 1 male + 1 female = 1 couple + N children. Where the value for N is determined by the frequency of 1 + 1.

It's the same with an apple. If you have 1 apple, how many apples do you actually have? As a matter of fact, an infinte number. Since if you plant the seeds, and each one grows into a tree which bears fruit, each of which contains seeds that can be planted to grow more trees and bear more fruit, and so on into perpetuity.

This is what Aquinas means when he writes, "Infinity is not a number, because numbers are counts." Infinity is a state of being, of limitlessness. It cannot be counted, thus it does not conform to mathematics. Another of my favorite books is Achilles in the Quantum Universe, by Richard Morris. It is the definitive history of the study of infinity. Most philosophers and mathematicians who grappled with it were driven completely mad.

But not poets. Blake: "The nature of infinity is this. Every thing is infinite."

It's the nature of fractal geometry, best illustrated by the Mandelbrot Set, which is an infinite set comprised of infinite subsets. Self-similar but never self-same across all levels of scale.

That's what Cummings means when he talks about a poet's "ineluctible preoccupation with The Verb." Because that's where the action is. Two times two is (notice he doesn't use the word "equals") 5.

The reason why is because he isn't talking about counts, that is numbers, but being. Two (1 male mind/body) times two (1 female mind/body) is one couple. That would add up to 1, 2, 3, 4, . . . 5.

TomOfTheNorth said...

I enjoyed the Iron Maiden but I found the vocals reminded me of Jack Black doing metal....guess I'm old.

watchtower said...

I'd never heard of the Bussard ramjet, the Tau Zero book looks very interesting.

The L98 is a great looking engine, wish the new Camaro's LS3 looked half as good.

getyourselfconnected said...

Gawains,
now you are way over my head!

Tom,
Are you really comparing Bruce Dickenson with Jack Black? The horror.....

Watchtower,
Tau Zero is a great read. Todays motors are so compact and now they cover them up with composite shells so you cannot see much. Again, the horror....

Moneta said...

A nice overview on inflation and the old rules not really in play here
---------------
Most economics theories are a farce. They are a product of the times.

Monetarists, keynesians, etc... they can't focus on more than 1 or 2 variables at a time(when the economy is multi-variate) until some economic variable that wasn't being followed gets stretched out to the max. Then some new economist comes out of the woodwork with a new theory revolving around this overextended variable.

For the last 30 years, it's ALL been about the interest rate. Everything is wrong with the world? Don,t worry, let's just cut 25 basis points. That ought to do the job!

I keep on wondering which 1 or 2 variables will be the focus of the next 2 decades... something tells me that's the investor's holy grail.

As for inflation, I don't understand how people are so ready to judge whether the Fed gets it or not. More often than not they will lie to the people. Do they think the Fed will ever tell us to run for the hills? They will only say that when it's a fait accompli.

A good case scenario for the US government is inflation of 6-8%. But do you think they'll ever come out and say it? Of course not.

getyourselfconnected said...

Moneta,
agree on all counts. Hope you liked the song.

GawainsGhost said...

"Most economic theories are a farce."

Actually, that is the subject of Yves Smith's ECONned. She demonstrates that the efforts of economists since WWII to make economics, which is really a social science, into a hard science like physics utterly failed, because of false assumptions and flawed models.

Moneta said...

I like her blog but for some reason I don't go there regularly.

Sometimes I wonder if a social science is not simply a hard science in its infancy.

Any discipline that uses statistics, such as economics, seems to suffer from a lack of rigor. For example, imagine using statistics and forecasts when building a bridge! That's what they did a couple of hundreds of years ago but not today.

Economics is multi-variate and the fact that we use statistics and forecasts is in my opinion a clear sign that we suffer from a lack of knowledge.

If we knew how it worked, we'd have formulas and be able to plug in numbers and solve our equations.

The fact that we can focus on a couple of variables at a time in a multi-variate world only shows how unevolved we humans are. We have huge trouble with non-linearity.

That's when the whole issue of free will kicks in. If we humans were truly intelligent, maybe we'd be able to see all causes and effects without resorting to using statsand forecasts. Furthermore, maybe we'd find out that our fate is predermined and has been for millions of years because each particle pushes another one in a determined way depending on the force, the friction, etc...

And maybe it's simply because we are not evolved enough that we actually think we have some form of control!

But I've read somewhere that you might get determinism at "human speeds" but chaos has been observed at high speeds.

In the last year, I've done a lot of reading on the subject but, alas, I just don't know enough to make a judgment and probably never will.

So when I read all these blogs and people telling us how the system can be fixed and who is to blame for it all, I find it quite amusing.

getyourselfconnected said...

I think the idea that any group of people at central banks and their economists can possibly be able to understand and control the literally millions of factors in an economy. That is why I have always said to have a bare bones system. It will figure itself out eventually. Great comments.

GawainsGhost said...

Well, Yves Smith's central point is that in economist's attempt to remake economics into a hard science they aimed at equilibrium, which is full employment. Thus, the assumption which became a mantra that markets are self-correcting leads to the postulation that economies naturally tend toward full employment, in the same way that a pendulum tends toward equilibrium. But that is a false assumption.

Also, the belief that participants are rational actors who make informed decisions based on their best interests is naive, to be polite. Modern economics really has no theory of money and thus reduces market transactions to nothing more than a barter system.

Further, deregulation allowed financial companies to focus more on trading as opposed to traditional banking, that is taking deposits and making loans, thereby emphasizing short term profits at the expense of long term health. With higher leverage and lower capital requirements, this shift is at the center of the current crisis.

There is much more in the book, detailed descriptions of collateralized debt obligations, credit default swaps, synthetic derivatives, and the like, as well as historical studies of previous economic crises and famous bankruptcies. It is remarkably well researched and offers a sweeping overview of how the current crisis unfolded, with particular emphasis on important papers and ideas that formed the foundation of modern theory, not only in economics but also in law, politics and governance.

I highly recommend ECONned. I've learned a lot by reading it.

getyourselfconnected said...

Gawains,
you know I have it here but have not got to it yet. I will really make the effort, sounds like it has plenty to offer.

GawainsGhost said...

This is some of the best advice on investing I've read.

http://www.zerohedge.com/article/must-read-seth-klarman-real-and-false-lessons-financial-crisis-blasts-government-market-inte

Take away line: "Do not trust financial market risk models. Reality is always too complex to be accurately modeled. Attention to risk must be a 24/7/365 obsession, with people – not computers – assessing and reassessing the risk environment in real time. Despite the predilection of some analysts to model the financial markets using sophisticated mathematics, the markets are governed by behavioral science, not physical science."

Exactly.

Moneta said...

GG:

From 2001-2005 I was managing a financials mutual fund.

One morning, my boss came storming into my office to tell me my fund was too risky.

I told him that his risk measures were statistically insignificant and/or meant nothing because all my stocks were highly correlated.

I tried to explain to him that if I was managing a high tech portfolio and had just gone to 0% weight in Nortel when it was at 120$, he would have come storming into my office telling me my fund was too risky because I was at 0% in Nortel when in fact I would have been drastically reducing the risk profile of the fund.

He looked at me with a puzzled look and told me that he didn't have time for my arguments and to just fix the problem.

The problem is that we are being run by MBAs who do not know math. They know how to put numbers in formulas but don't really know what it all means. In fact, many of the economic and financial theories that are pretty good are being badly applied in the real world.

For example, the MPT says that we should use expected risk and returns. Since nobody has a c rystal ball, everyone uses past risk measures and returns. How many leaders actually know this could be an issue? And now we're blaming math? Honestly, this is a perfect example garbage in, garbage out.

When everyone around you is saying the earth is flat, you've got to decide whether you argue or go along. People were killed for believing the earth was round so most will go along.

In the last decade, math wizards were given the opportunity to create these black boxes and make fast money. Something tells me they knew darn well their models would not hold up long term but did their bosses care? I doubt it, and like my boss, if you tried to explain why it would collapse they couldn't have cared less.

Then to add a layer, you have those who knew darn well what was going on but just played dumb enjoying the ride.

So yes I believe that our risk models are limited but I majored in math and know for a fact that worse than that, many of the models were badly applied.

I'm not a rocket scientist, yet I had enough data to know we had hit bubble territory in 2003. I started googling "Real Estate Bubble" around that time and nothing came out apart from benign definitions from the 80s.

We humans have come a long way but we're still pretty dumb!

Moneta said...

GYSC:

Thanks for the song, hadn't heard it in a while!

But no matter what I keep on hearing:
"he gave me an edge of my sandwich" (vegemite)

One of those songs where no matter what, you hear what you want to hear:

-Love is like a popsicle (oxygen)... Yes, yes I was a kid and I had a one track mind.
-She's so popular (jeux sans frontières)
-Baking carrot biscuits (taking care of business and working overtime)

GawainsGhost said...

Well, M, I think they understand math pretty well. It's markets they do not understand.

This is another thing Yves Smith writes about. Neoclassical economics theories do not account for how finance can distort markets. For example, artificially low interest rates spur speculative bidding that drive asset prices to artificially high levels. This is exactly what happened in the real estate market. It's also what happened in the oil markets when prices surged to $150/barrel.

But neoclassical economists, like Krugman, had no explanation other than simplistic supply and demand. This is because their theories and models ignore how interest rates, and tax rates I might add, influence the behavior of market participants. Their mantra seems to be, a flawed theory is better than no theory.

I remember back in 06, the height of the bubble, I had to do this open house on a repo. Now this was a nice house in one of the better areas, in the preferred school district. 2-story, 4000+ sf, 3 living, 2 dining, equipped kitchen with tile counters and fine cabinets, 5 bedrooms, 4.5 baths, 3-car garage, sal tillo tile and hardwood flooring, wood panelling and built-ins, large backyard with a masonry fence and an in ground pool, covered patio with a built-in barbeque pit. Priced to sell at $500,000. (I realize that a house like this couldn't sell for less than $1.5 million, probably a lot more, in Southern California, but this is South Texas.)

So I'm there at this house, and here comes these two girls from Wells Fargo. They brought me a bag of goodies, snacks, water, pens, day planner with calendar, that sort of thing, and started chatting me up, because they wanted me to send them prospective buyers for financing. (Food, sex, it's a powerful incentive.)

"We offer no documentation loans, interest only loans, adjustable rate mortgages, zero percent downpayments, . . ." the litany of toxic financing.

I'm thinking, this is insane. No one who can afford to buy and maintain this home is going to take that kind of financing. But that was all the rage at the time.

Well, within a few weeks, we had multiple offers and the house sold for over list price to a wealthy Mexican national who paid cash. (Nice little commission that.) End of story.

The moral being, look at how low interest rates and financial "innovation" influenced the behavior of the market participants, particularly the mortgage lenders. It didn't just affect buyers, sellers, agents, brokers, appraisers, but also tax assessors, local, state and federal officials, regulators, everyone. They all kept saying, "Housing prices only go up!"

And I kept saying, um, no they don't. This is a speculative bubble inflated by easy credit, and it's going to burst when the credit dries up. Sure enough, a little over a year later, POP!

I'm learning a lot about how all of this came to pass by reading ECONned. It's a complicated story involving a number of factors that developed and unfolded over decades. And it's going to take decades to correct, because the false assumptions, flawed models and failed theories that made it all possible are firmly entrenched in the minds of greater fools.

But I'm beginning to realize that the greatest fools are the economists themselves.