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  • Don't Be Surprised if We See a 31% Correction [View article]
    Yesterday a video was posted on SA with the Black Swan himself, Nassim Taleb, in the interview hot seat. One of the points he made is that, to paraphrase, all the mathematics taught in B-School is wrong, as in, the math is mis-applied to the subject at hand. And Elliot Wave theory is a good example.

    Elliot Waves, and a host of other attempts to predict the future of the stock market are an improper application of a class of mathematical techniques known as "boundary value" methods. There are dozens of well known mathematical series (Taylor polynomials, Fourrier series, and Gaussion series are among the better known) which can be used to give an APPROXIMATE mathematical formula which connect a set of discrete observations.

    The discrete set of observations might be, say, the closing values of the S&P500 for 2008. A mathemetical series could be developed using, say, the Friday closes for the year. These would be the boundary values for the series. The series, which would give EXACTLY the correct values at those points in time, MIGHT represent fairly accurately the missing data (the closing values the other 4 days of the week.) Or it might NOT. It would depend on whether or not the series you chose was appropriate to the data you are trying to model.

    All fine to this point. But now we want to know what the FUTURE values of the S&P 500 might be. So we take the mathematical formula we developed, and start using it for points in time OUTSIDE the range of our boundary values. That won't work. There is a wealth of mathematical proofs which show, beyond the shadow of a doubt, that the mathematical series (formula) developed from a boundary value problem is accurate within a certain probability (what mathematicians refer to as "convergence") for all data WITHIN the boundaries of the problem, but that there is no guarantee, or even expectation, of convergence OUTSIDE of the boundaries of the problem. In most case, however, if the data being modeled are fairly smooth there is APPARENT convergence for data points lying JUST outside of the boundaries.

    That's why, time after time, we can get beautiful results to fill in the missing data between observation points, and what appear to be accurate predictions about the future, but can NEVER get accurate results very far beyond the range of our initial observations.

    You can make all the pretty Elliot Wave charts you want to to fit historical data, but more than a month or two into the future and you've lost any hope of accurate predictions.

    Nobody can see the future. Not Bob Prechter, Charles Dow, or Ricahard Russel. The laws of mathematics are clear - you CAN'T predict the future.
    May 20, 2010. 03:02 PM | 49 Likes Like |Link to Comment
  • Is Joe Sixpack's Economy Deep Into A Recession? [View article]
    "We hear that Joe is slouch. . . "

    You just might want to consider the source. We hear that constantly from the political right, usually in the context of trying to justify further erosions of worker's rights, the social safety net, unemployment benefits, etc. so that further reductions in the tax rates of the wealthy can be justified.

    Of course, the wealthy have seen skyrocketing incomes and net worths even as Joe's income has stagnated and his net worth has been cut in half.

    42 million people on food stamps. Of course, if you read the qualification guidelines, you very quickly realize that means 42 million people who can't afford basic necessities, like healthcare.

    We hear constantly that the US is the greatest, most powerful, and wealthiest country on earth.... It is also a country that fails to provide basic healthcare to its citizens, about 20% of whom have no access to basic healthcare - even as doctors, lawyers, and insurance companies wring massive amounts of money from the system so that they can join the 1%. How is it that countries like Sweden, Japan, Switzerland, Germany, France, etc. can afford to care for the health of all of their citizens, but the US CAN'T?

    If you divide the economy into the economy of the 1% and the economy of the 99% you will find that the economy of the 99% has very little liquidity and the velocity of money can't possibly increase. Most of the 99% live from paycheck to paycheck IF THEY'RE LUCKY. The 1% have all the cash, and they're playing keepaway with it.

    Somehow the wealth being withheld from the larger economy by the 1% must be put back into circulation in the broader economy. That function used to be performed by taxation. Other times and places, that funciton has been performed by revolution - 1789 France, 1917 Russia, 1959 Cuba, etc. The political patrons might want to consider which method of wealth redistribution is prefarable while they still have a choice.
    Jun 16, 2012. 01:48 PM | 38 Likes Like |Link to Comment
  • Employment Picture Is Getting Bleaker [View article]
    Here's an excerpt from Krugman's piece, which you like so much.

    "But no. All the buzz lately is that the Obama administration is “antibusiness.” And there are widespread claims that fears about taxes, regulation and budget deficits are holding down business spending and blocking economic recovery.

    "How much truth is there to these claims? None."


    I'm one of those small business owners Intuit counts as a customer. And I can tell you that the uncertain environment re: payroll taxes, mandated benefits, and healthcare cost crosses MY mind every time I consider my staffing requirements. Which, since I'm working 70 hours/week, week in and week out and would LOVE to hire some help, is a daily consideration.

    How will future budget deficits and/or tax increases affect my business, and the business of my customers?

    How, in about 3 years time, will I be able to afford to purchase health insurance for myself (which I currently can't afford), will I be forced to lay off an employee and take over their responsibilities to free up cash flow?

    Will persistent structural deficits raise interest rates and with them my debt service and cut into my cash flow?

    These are daily (and nightly) trains of thought for me, a small business owner in the USA.
    Jul 11, 2010. 04:20 PM | 34 Likes Like |Link to Comment
  • I Love the Smell of Housing Collapse in the Morning [View article]
    That's really NOT a smart idea. Low income tax rates, and ridiculously low capital gains rates are what got us here in the first place.

    Those in a position to set their own pay rate (business owners and executives) not only are incentivized to pay themselves ridiculous salaries, but also to suck every but of capital out of a company in the short term. On the other hand, confiscatory top marginal rates remove any potential gain from increasing your own salary, and increase the liklihood that the executive or business owner will re-invest his profits in his business.

    One of the biggest problems for many companies is that CEO after CEO has left via the Golden Parachute, while no money is ever invested in modernizing facilities. This goes on until the company is no longer competitive. Goodbye jobs, goodbye company.

    I've been to way to many auctions of failing manufacturing enterprises, the one thing they all have in common is aging, obsolete, decrepit equipment which SHOULD have been replaced years or decades earlier, but weren't, all the while the executives and stockholders took THEIR money off shore or used it to buy foreign cars, yachts, or estates in the Hamptons.
    Aug 24, 2010. 01:28 PM | 25 Likes Like |Link to Comment
  • Don't Bet on a Recovery [View article]
    If you listened to this guy a year and more ago, he was in the camp making predictions of food riots (because farmers wouldn't have the money to plant seed), $5000 gold, 1400 DJIA, etc.

    But I'll take the challenge -

    "I would challenge those who fantasize about a consumer-led recovery to describe where the spending money will come from."

    It's called the underground economy. I know quite a few people receiving unemployment compensation - among them:

    My BIL, who lost a job of 20+ years managing an auto repair shop has started his own - strictly cash, under the table - while he continues to draw his checks.

    My former next-door neighbor lost his job a couple of years ago. He now does home repairs/improvments, again, stictly cash under the table. He also has a pretty good business on e-bay, trading vintage stereo equipment.

    Two former co-workers (both now machinists) are 'free-lancing' - helping other shops out here and there, again, cash only. It's interesting how many businesses are able to generate cash income (unreported) to pay cash employees (again, unreported).

    I've approached three acquaintances who I know to be unemployed over the last few months about work in my shop, the answer each time? "It would have to be cash, I don't want to lose my unemployment benefits."

    So, if only a fraction of people on unemployment are working under the table it would generate enough income to more account for the .5% rise in spending.

    The underground economy also skews ever govornment financial statistic, and continued extension of unemployment benefits only worsens the problem.
    Mar 2, 2010. 08:06 AM | 24 Likes Like |Link to Comment
  • Fuggedaboutit Friday - Dip? I Didn't See No Dip? [View article]

    As someone whose livelihood and profits depend on a free and fare market, and as someone who decries govornment interventions in and distortions of the free market, you should be 100% diametrically opposed to unions.

    What greater distortion of a free market is there than to tell an actor in the market "You can only hire a union member, and must pay the wages and benefits the union decides."

    In the private sector, there are two strong, obvious, key checks placed on union wage demands by the free market:

    1) If employers yield to union demands and those demands are excessive compared to the rest of the market, the employer loses competitiveness and eventually goes bankrupt.

    2) If the employer doesn't yeild to union demands he is free to relocate to an area where he can hire non-union labor.

    Those two harsh realities of the market have resulted in millions of manufacturing jobs leaving the US and also in the bankruptcies of hundreds or thousands of businesses. It is the reason unions have dwindled into near irrelevance vis a vis private employers.

    Unfortunately, cities, counties, and states can't avail of the second option. They are forced to operate where the are located. And the first option doesn't exist. There is no "market competition" for govornment or govornment services.

    Unionization of employees is completely incompatible with provision of public services. In a private labor dispute, the stockholders and managment, the parties in control of compensation, are the parties directly affected by a work stoppage.

    Is govornment harmed by a teachers strike?
    Is govornment harmed by a firefighters strike?
    Is govornmetn harmed by a police officers strike?

    No to all three. The injured parties - students, property owners, citizens - have absolutely no voice in labor negotiations.

    If I held a gun to your child's head, and said, "Pay me or I'll injure your child" I'd be imprisoned for assault.

    If I threatened to burn your house down if you don't pay me, that's extortion.

    Yet those are exactly the threats public unions use to extort money from taxpayers.
    Feb 25, 2011. 12:40 PM | 22 Likes Like |Link to Comment
  • Decline: We Are Doing It to Ourselves [View article]
    The public education system in the US is a complete joke. I was an engineering student at Clemson University. I finished with a MS in electrical engineering in 1990; even at that time foreign students were at least 2/3 of the graduate school.

    Students come out of American high schools, after having been given extra credit for effort and after earning watered down diplomas. Gone are analytical skills, in are "test taking skills"; we don't teach the subjects anymore, we teach the tests. My experience is that most high school graduates today are barely literate and have no mathematics skills at all. Many can't find their own home state on a map of the US, most couldn't tell you which way to sail to get to China, and practically all of them haven't the faintest clue about the constitution OR WHERE IT CAME FROM AND WHY. When these students are suddenly competing (and, yes, it is DEFINITELY competition for grades at most universities) with foreign educated students, they quickly fall by the way side. It's painful and embarassing. Off to the drama department, or sociology, or art, anywhere that there aren't objective standards or right and wrong answers.

    The US educational system worries too much about hurting our delicate students feelings, damaging their all important self esteem, and far too little about giving students realistic evaluations of their understanding. A false sense of self esteem is far more damaging than a lack of self esteem.

    "No child left behind" = "No child gets ahead"
    Sep 1, 2010. 06:11 PM | 20 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    >"Broke Obummer" [sic]

    Go ahead, keep that derisive and dismissive attitude. Watch the Republican Party shrink into an inconsequential fringe party.

    And, in case you haven't noticed, there are two major differences between the US and Greece:

    1) We borrow in a currency we issue.

    2) We are a highly competitive economy producing goods and services the rest of the world desires. Efficiency gains in the US guarantee competiviteness of our exports, and, since we're not in a fixed exchange rate regime with anyone, any relative efficiency mismatch is corrected by exchange rate variations.

    Greece is screwed because a) the are in a fixed exchange rate regime with a much more efficient economy [Germany] which means that relative exchanges in efficiency can't be corrected by exchange rate variations, and b) they borrow in a currency they don't control. If you can't appreciate the effect of those two profound differences between the US and Greek economies, you really will have a hard time understanding the basic functioning of the US OR GREEK economies.
    Jan 22, 2013. 09:11 AM | 19 Likes Like |Link to Comment
  • Israel's Huge Oil and Gas Discovery [View article]
    I wish Israel all the luck in the world getting offshore platforms built and into production, pipelines constructed, and refineries operating. Somehow, between Hezbollah, Hammas, Al-Qaeda, Egypt, Syria, Iran, and Lebanon I would imagine it would be cheaper to continue importing oil than to build and defend the necessary infrastructure.

    How hard would it be for any of the above listed entities to attack/sabotage offshore pipelines and wellheads?
    Sep 2, 2010. 10:26 AM | 19 Likes Like |Link to Comment
  • How Inflation Could Happen In The U.S. [View article]

    Google "billion prices project"

    It's an attempt by researchers at the Sloan School of Management at MIT to measure price changes in real time as many of ALL transactions, worldwide, as possible.

    When the project was first announced, all of the inflationistas and followers were ecstatic, because they were sure, sure that this project would expose the 'official' inflation statistics as a lie.

    What happened in reality is that it confirms the CPI. At which point, all of the inflationistas and followers proclaimed it "part of the conspiracy."

    You suffer from what psychologists call "confirmation bias". You believe that inflation is rampant and look for confirmation. Any particular data point that you observe that confirms your point of view, you say, "Aha! Inflation is real" and commit that to memory. And any data that FAIL to confirm your point of view you forget about quickly.

    This isn't an intentional act, it's a key characteristic of human psychology. We pay far, far more attention to things that confirm our views than the ones that contradict them. It's why two different people can look at the same data and rach two different conclusions.
    Feb 23, 2013. 01:03 PM | 17 Likes Like |Link to Comment
  • Thank G20 It's Friday - Yet Another Global Clusterfuss [View article]
    "Dollar issuance by the United States is out of control, leading to an inflation assault on China,"

    If China is upset that their currency is being devalued by the decline in the dollar, there is actually a very simple solution: Let the Yuan float freely in the markets. Then the Chinese would be immune to the inflationary aspects of a declining currency.

    But that's NOT what China is worried about. They are worried about protecting the value of their massive FX reserves, which a floating Yuan would hurt. So they talk tough about the US devaluing the $, while they devalue their own currency to advance their mercantilist policies.

    They can't have it both ways. They can't simultaneously decry US mercantilism while practicing it themselves.
    Nov 12, 2010. 11:10 AM | 17 Likes Like |Link to Comment
  • Friday Finale: This Is The End, But For Who? [View article]
    Sure, Facebook has 800M users, and that sounds great, at least, until you consider who the actual users are:

    Kids, out-of-work 20 and 30 somethings, a few grandparents, and a whole lot of people in China, India, etc. (OK, maybe I'm being a bit pessimistic).

    But who DOESN'Tuse Facebook? Well, me for one. I own a business and don't have any idle time to fart around wasting time on Facebook. (My internet time-wasting is pretty much limited to SA, but I tell myself I'm gaining a lot of useful knowledge). Several of my vendors/customers/comp... are also owner/operators and I don't think any of them spend much time on Facebook. I doubt Warren Buffet, Bill Gates, or Jamie Dimon spend much time updating their status either.

    Sooner or later, advertisers will realize that Facebook is great at reaching people who don't have a lot of money (because for them, free is about all they can afford); but that very few people with real wealth or assets are using Facebook and that the value of the market segment Facebook is reaching is limited.

    If Facebook IPO's around the middle of the expected range, then the value placed on each and every Facebook user will be $1000. How many of Facebooks users are worth spending $1000 to access? If every person on the planet had a Facebook account, they'd have to be worth $125 to reach - at the expected IPO price - and probably about 5 billion of them don't HAVE $125 in total assets.

    An awful lot of media coverage lately regards Facebook's privacy policy, and the vast amount of personal information users are unwittingly making public. There will be an eventual backlash against this.

    And how hard would it be for another company to duplicate Facebook's business model? The barrier to entry is pretty low. Anybody remember a company called MySpace? Facebook could easily follow them down the drain.
    Feb 17, 2012. 12:31 PM | 16 Likes Like |Link to Comment
  • Fuggedaboutit Friday - Dip? I Didn't See No Dip? [View article]
    And as far as the Democrat legislators in Wisconsin, they absolutely are NOT serving the interests of the public at large. They are serving the narrow political interest of the unions in return for the the massive campaign contributions the receive from them - essentially, the Democrats are voting themselves campaign funds from the state's coffers.

    Follow the money: Huge donations by the unions to political races, which assure the continued union contracts, the flow of union dues into the unions coffers, to be doled out to the Democratic candidates in the next cycle.

    Corruption, pure and simple.
    Feb 25, 2011. 12:46 PM | 16 Likes Like |Link to Comment
  • Fracking, Climate Change And What Gets Lost In The Shuffle [View article]
    So, when you can use your photo-voltaic to light your home at night, let me know. Oh, what's that you say, use storage batteries?

    Well, if you want to switch to renewables and abandon fossil fuels you'll need storage capacity. A volume of lead-acid storage batteries (still the most cost effective storage format) sufficient for US needs for a week (worst case scenario? maybe, maybe not) would be about a cubic mile, and would require about 5 billion tons of lead for the plates.

    Global lead reserves are estimated, total, world wide, at about 1.5 billions tons. Not enough even for the US, let alone storage needs for the other 95% of the world's population.

    Full oil from The Oildrum:

    Yes there are other storage technologies, and yes some of them might be smaller or less materials intensive, but the idea that we could build enough storage to make renewables feasible is pretty silly. Germany is experiencing the downside of their solar boom right now.
    Nov 29, 2012. 01:26 PM | 15 Likes Like |Link to Comment
  • Silver: $25 in Sight [View article]
    Too bad SA took away the MINUS button. Sure would be useful about now.
    May 17, 2011. 05:07 PM | 15 Likes Like |Link to Comment