Skjellifetti's Comments

Is a Deficit-Neutral Stimulus Possible?

Wed, 02 Dec 2009 16:47:51 -0500

Keep pushing Brad. Some of us are using your arguments to actively lobby our Senators and Reps to enact this kind of plan. The response has been pretty good.

Illegal Alpha

Wed, 02 Dec 2009 10:15:42 -0500

Yes, it is interesting. Thank you.

On a side note, be wary of anyone who uses a computer algorithm to generate pseudo random numbers (as these authors do for illustration of why large data sets are necessary to average out the error terms). Most computer random number functions are based on the Unix rand() function which turns out to be not-so-random. The classic paper is:

portal.acm.org/citatio...

On Dec 01 09:46 PM Wildebeest wrote:

> this may be of interest:
>
> espace.library.uq.edu....

Illegal Alpha

Tue, 01 Dec 2009 21:02:03 -0500

I've always wondered about this. Morningstar, for example does not publish error stats for any of its risk measures. Thus there is no way of knowing if the values for alpha, beta, r**2, etc for a fund are at all meaningful.

On Dec 01 06:05 PM Wildebeest wrote:

> A significant problem with the practical application of the CAPM
> (ignoring for the moment the theoretical rebuttals of it over the
> years) is that the standard error in the estimation of market risk
> premium, and of beta, is large enough to render the resulting number
> you get virtually useless ...if you take error estimates into account
> when performing a calculation that is.

Climategate: Climate Science, Or Pseudoscience?

Tue, 01 Dec 2009 00:14:10 -0500

There is a huge difference between a bunch of scientists mouthing off to one another via email and peer reviewed science. Think of the difference as if, say, a guy named "Ironman" were to write a story on an investment blog where half the posts are written by wacko conspiracy theorists vs papers published in Financial Analysts Journal. Should the half-wit cruft published here discredit the work of Fama, French, Sharpe, etc?

On Paul Krugman's Deficit Rationalization

Wed, 25 Nov 2009 18:21:25 -0500

Krugman has been very consistent in his op-eds and his blog. His basic point, made a year ago and repeated many times since, is that the stimulus was never large enough. The point of the stimulus is that the discounted cost of the lost output due to the recession is much greater than the discounted cost of the stimulus itself. If you are a young college grad facing today's job market, which is preferable: stimulus spending today that provides jobs today to be paid for in higher taxes later, or NO JOB AT ALL FOR THE NEXT SEVERAL YEARS?

Further, he has been consistent in noting that we are in a liquidity trap and therefore monetary policy will not work, that TARP could not and, in fact, did not work to make the banks start lending again, and that we should have wiped out the stockholders by nationalizing the banks outright rather than socializing their loses via TARP.

Oh, and BTW, the NYT is a PRIVATE newspaper and not government owned. 1st Amendment doesn't apply to private speech. If your comments on his blog have been ignored, it is likely that it was because they are as incoherent and rude as the tripe you wrote below.

On Nov 25 04:30 PM bottoms-up wrote:

> Krugman?
>
> Take a look at what he said a year ago.

> I think there is a lot of "creep" in his statements on the economy.
> Check out his year ago statements on unemployment...
>
> Look at bank lending -- the report just came out -- lowest on record.
> Look at what Krugman said last year about the TARP.
>
> Oh! I'm not supposed to criticize his Majesty the No-Bell Prize
> winner? Tough! I know that people like Krugman through out our
> somewhat free-market economy long ago, but I'll be you know what
> if people like him dump our freedom of speech too! BTW: Try to say
> anything slightly critical of Krugman in the comments of his NYT
> blog... Won't get published...

How the AIG Bailout Scuttles the Chance for a Second Stimulus

Wed, 18 Nov 2009 18:36:29 -0500

Neither Geithner not Summers ever believed we could pump enough money in to the system via monetary stimulus to raise the animal spirits from the dead. They know we are caught in a liquidity trap. But Obama was not willing to expend the political capital necessary to push through a fiscal stimulus package of the size that was required to get us out of this mess. And now Obama is caught in a political trap of his own making. By failing to nationalize failed banks like C and bailing Wall Street out instead, he has lost whatever goodwill with Main Street he started with. The result is going to be just like Roosevelt in 1937 who kowtowed to the Republicans by prematurely withdrawing the fiscal stimulus and ended up putting us back into a recession.

On Nov 18 03:24 PM Davewmart wrote:

> Not even Geithner or Summers now believe that they can get away with inflating the economy by pumping money in to raise 'animal spirits'.

Bair's Chutzpah

Tue, 17 Nov 2009 09:54:04 -0500

> But the fact is that she did have the option of paying off WaMu’s senior unsecured bondholders, and she dismisses that option a little bit too blithely in saying that she doesn’t like “bailouts”.

Umm, why do the owners of senior unsecured bonds have any expectation that the FDIC will cover them if a bank fails?

> Maybe this is a matter of opinion, since it’s hard to prove a direct causal relationship, but Bair, here, wiped out the senior debt of an enormous commercial bank — the kind of debt which is exactly what Libor measures.

Are you suggesting that Libor has built in expectations that unsecured bonds are, uh, secured by the government? Isn't this the essence of the moral hazard argument of private profit and socialized losses that has so enraged Main Street this past year?

Understanding the Dollar Debate

Mon, 16 Nov 2009 09:51:24 -0500

There seems to be a very strange almost Calvinist "The recession is proof that we did not have enough faith and therefore we must let the failures proceed in order to be cleansed of our sins" streak that permeates Austrian economic doctrine.

> "The prescription embraces a willingness, perhaps even a necessity, for the recession to become much deeper. The resulting unemployment and business failures are part of a needed cleansing process that will avert an inevitable deeper economic decline."

The Unsustainable Lie of Inflation

Mon, 09 Nov 2009 14:57:29 -0500

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it..."

The lie that is being repeated too often by folks who haven't any real understanding of Keynes is that QE is going to (or has already) caused an inflationary problem.

Wall Street: Dumb as It Ever Was

Sat, 07 Nov 2009 17:20:11 -0500

The old formulas were based on linear approximations of non-linear phenomena. We simply don't consume the same basket of goods over time and measures of inflation, etc. have to reflect that.

On Nov 06 02:40 PM JeffDB wrote:

> So how exactly does Shadow Stats get things wrong? From their page explaining some of the issues they have with the official government figures, they don't mention sampling errors, or math errors etc. Their contention is that the government, over a number of different administrations has deliberately revamped the formulas themselves to make the numbers look better. Do you dispute this? If so, on what basis? Do you have any hard evidence to back up your contention?

Wall Street: Dumb as It Ever Was

Sat, 07 Nov 2009 17:12:11 -0500

I completely agree. The "I read it on shadowstats so its gotta be true" crowd is getting tiresome.

On Nov 06 10:20 AM American in Paris wrote:

> Shadow Statistics is a bunch of rubbish. I have a background in statistics and am intimately acquainted with how the government samples populations to to form estimates. It's quite solid.

> Shadow Statistics is just one notch above the Conspiracy Theorists.
> Just one short step ....

Charlie Gasparino: Another Crash 'Has to Happen Again'

Sat, 07 Nov 2009 17:03:48 -0500

Calvinist financial prudes are just as obnoxious as the shop 'til you drop crowd. There is nothing wrong with using debt in your personal financial picture. But you do need to know where the sensible limits are.

On Nov 06 12:21 PM Michael Clark wrote:

> Spending money you don't have is immoral and leads to an Armageddon. If you ignore this truth, then the punishment will be even worse the next time.

Why There Can't Be a Cap on Bank Capital Ratios

Thu, 05 Nov 2009 19:14:29 -0500

For someone who is as disparaging of economics as Taleb is, that sure looks a lot like a rather ordinary application of standard economic maximization. Seems like "Risk Engineering" is just economics dressed up in new clothes.

The DJIA's Dangerous Indexing Philosophy

Wed, 04 Nov 2009 22:25:42 -0500

The Fine Print: As Registered Investment Advisors ...

And you just now figured this out?

The Roots of the Coming Crash

Wed, 04 Nov 2009 22:04:35 -0500

Its when you're following the herd that the rattlers are most dangerous. Its the leader that wakes the rattler up. The second guy in line riles him up. The third guy is the one that gets bit.

On Nov 04 05:13 PM Mad Hedge Fund Trader wrote:

> zxb I almost stepped on a rattlesnake last night.

America, The Nanny State

Mon, 02 Nov 2009 14:34:30 -0500

On Nov 02 08:50 AM O-B-WON wrote:

> If only all of the citizens of the United States of America would read and comprehend the above information, we might have a chance to turn "things" around.

We The People have read this kind of diatribe before and We The People have rejected it. You are in the minority. Get over it.

Arianna Huffington: New Media Outlets Must Prove Commitment to Truth

Mon, 02 Nov 2009 14:09:41 -0500

We need both HuffPost and Fox for the simple reason that most of the mainstream journalists have become too lazy to do anything more than simply reprint whatever was in the press releases the politicians and businesses hand out. Did any of the mainstream press do any real digging about, say, the WMDs that the Bush admin claimed were in Iraq before we went to war? Where was the mainstream business press when AIG was buying and selling swaps like they were baseball cards?

Forecaster Gerald Celente: 'There Is No Economic Recovery'

Thu, 29 Oct 2009 12:27:33 -0400

Food riots? Obamageddon? Facism in the U.S.? HAHAHAHAHAHAHAH! The fringe element on the right is certainly good for some laughs!

This article just put M. Prieur du Plessis on the "Not Worth Taking Seriously" list.

The Intrinsic Value of Nothing, Part 1

Tue, 27 Oct 2009 15:50:20 -0400

On Oct 27 12:50 PM jeffgroove wrote:

> The problem with other schools of economic thought is that they assume good intentions on behalf of the people in charge ...

Bzzzt. No school of economics assumes anything of the sort.

The Intrinsic Value of Nothing, Part 1

Tue, 27 Oct 2009 15:45:33 -0400

The Labor Theory of Value was actually first espoused by none other than Adam Smith and is associated with a whole host of early classical economists (Smith, Malthus, and Ricardo) as well as Marx.

"The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people."

-- Wealth of Nations Book 1, chapter V

"The value of any commodity, ... to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities."

-- Wealth of Nations Book 1, chapter V

Most economists today start with utility theory which basically says that individuals have a set of preferences where a larger quantity of a good is preferred to lesser quantities of the same good and preferences are transitive so that if a bundle of goods (A) is preferred to another bundle (B) and B is preferred to still another bundle (C), then A will be preferred to C.

Because people have preferences, goods have value to them even in the absence of exchange because a person can always state whether they prefer one bundle of goods over another (i.e. they value one set of goods over another). In fact, it is downright inane to argue that something has value to you only because someone else finds it valuable as well. This is one of the traps that caused the labor theory of value to be abandoned because they could never quite reconcile the concepts of value in use and value in exchange. Today we do that via supply and demand curves derived from costs of production on the one side and utility theory on the other.

"The word VALUE, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called 'value in use ;' the other, 'value in exchange.' The things which have the greatest value in use have frequently little or no value in exchange; and on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarce any thing; scarce any thing can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it."

-- Wealth of Nations Book 1, chapter IV

Real Cause of This Financial Crisis? Global Hunger for Savings Instruments

Thu, 22 Oct 2009 12:13:01 -0400

>Every sort of idiotic expanation is offered by academic economists for the financial crisis. Explaining the crisis has become a major industry. The academics by and large haven’t a clue. Grass might as well grow where their classrooms now stand.

I call shenanigans. Warning about the probable consequences of the structural imbalances caused by Asian's high savings rate has been a cottage industry in academia for years. As Herbert Stein once said: "If something cannot go on forever, it will stop." Too bad that the financial industry refused to listen.

Niall Ferguson: Dollar Is Doomed, U.S. Empire Over

Wed, 21 Oct 2009 12:58:25 -0400

On Oct 21 10:43 AM enigmaman wrote:

>Why are they pushing for Obamacare so strongly when so many questions remain and in spite of the resistance by the populace,

Because the polls show that most of us want health care reform which includes a public option. CNN has the public option at 61% favorable, ABC-WPost has it at 57% favorable.

The Greatest Depression Is Coming

Mon, 19 Oct 2009 11:47:32 -0400

Shadowstats needs to rename itself. I suggest "NonLinear Trends Extrapolated Linearly Forever .com"

On Oct 17 08:33 AM VennData wrote:

> "Shadowstats.com estimates unemployment is above 20%" Oh, I see.
> Than it must be over 20% All those BLS statisticians toiling under
> administration after administration are engaged in one huge conspiracy
> and only one guy at Shadowstats has all the answers.
>
> And you're really collecting some great data to support your "The
> Middle Class is holding on for dear life." meme.
>
> Put the tin foil hat down.

Jim Rogers on the Next 10 Years

Fri, 16 Oct 2009 13:04:42 -0400

On Oct 11 12:06 PM Albertarocks wrote:

> But now for the first time in literally centuries, hegemony is being transferred to a country that is clearly and undoubtedly going to emerge as the leader of the world for the next few centuries.

Yawn. That is exactly what was being said about Japan in the 1980s. Look where they are now. Give it 20 years and we'll be saying the same thing about India.

Doesn't Rogers have a conflict of interest yammering about the virtues of commodities all the time given that he owns one of the indexes? I don't disagree that commodities belong in a diversified portfolio, but only at about the 5% level. Just like everything else, commodities have a tendency to regularly crash and burn and its usually just when you need their diversification benefits the most.

'End the Fed' Author Ron Paul's NY Victory Lap

Mon, 05 Oct 2009 10:11:18 -0400

Ron Paul does not stand for freedom. He stands for ignorance.

Housing Bottom - Oh Really?

Fri, 11 Sep 2009 11:33:43 -0400

Marie Antoinette would disagree. ;)

On Sep 11 08:51 AM Michael Clark wrote:

> Oddly, the rich have the power to ruin everyone's life, as they have
> shown n their last (most recent) act of self-destruction, the popping
> of the Great Hindenberg that they had raised above Wall Street.

>
> The poor really don't have that kind of power, not at the moment
> at least.

A Tale of Two Inflations

Thu, 10 Sep 2009 11:17:31 -0400

My cell phone holds more computing power than was available on most university campuses in 1970. The MRI machine that saved my wife's life didn't exist in 1970. A physician recently told me that the number of slices taken by medical imaging technologies, like Moore's Law for semiconductor density, doubles every couple of years.

To say that:

For the purposes of this discussion and as the source for all the charts that appear here, only original Labor Department data is used and all issues related to such things as hedonic adjustments, geometric weighting, and other factors that contribute to the "reported" rate of inflation almost always coming in lower than the rate of inflation experienced in the "real" world will be ignored.

means that your analysis is meaningless since you are comparing yesterday's apples to today's oranges by ignoring the huge technology growth that has occurred in many of the goods and services incorporated in the CPI. The "real" world does not stand still over time.

A New Worry for Stock Market Bulls

Wed, 09 Sep 2009 12:07:00 -0400

Saturday WSJ publishes a table with both forward (estimated) and trailing PEs for the U.S. The Saturday FT has a chart that shows forward PEs for most investable countries. These might be published on other days, but I seldom bother to buy these papers M-F.

On Sep 09 10:16 AM zagrebzagreb wrote:

> Regarding the above comment on the aggregate S&P P/E ratio....
>
>
> Yes, I've been looking for a reliable source on that figure myself.
> Anyone have a suggestion on where to look? In terms of market under
> / over valuation, I just think its a great number to help keep your
> perspective.

Distinction Between Positive and Normative Economics Misses the Point

Fri, 28 Aug 2009 16:11:19 -0400

There are many different criteria that can be used for deciding if the benefits of a public project outweigh the costs. Identifying those criteria is positive economics. Picking one criteria (e.g. Hicks-Kaldor) as somehow the best test is normative. What are we doing when we are paid to do a CBA based on Hicks-Kaldor? I would argue that we are doing bad economics if are not providing the actual decision makers with estimates of the sensitivity of our analysis to the various assumptions that are built into the analysis. It is this sensitivity analysis that brings work like CBA or revenue estimation back into the realm of positive economics even when the policy choice we are analyzing is normative.

No Future for Vonage

Fri, 07 Aug 2009 12:04:02 -0400

Vonage is doomed in the long run. What Vonage does is to connect internet machines using VOIP (Voice Over IP) to the POTS (Plain Old Telephone Service). But at some point, we will all be using VOIP and POTS goes away. When that happens, there will be no need for Vonage as a service provider since VOIP apps will be bundled into the computer OS or the phone handset itself.

Of course, the demise of POTS could be many years away, but beyond the interconnect, what does Vonage offer that has not already been trivially duplicated?

Vonage's competition:

www.voip-info.org/wiki...