Thursday, January 31, 2008

Great Tom Brady mini-autobiography on his days at Michigan

posted by Mike Sando:
In my fourth year, Drew had come in and he was competing and a great player. I'm surprised he is not playing today. And we did pretty good when I was there my last couple years, 10-3 and 10-2, finished fifth in the country one year. There was a lot of teams that didn't choose me coming out and I really feel that I have improved a lot as a player as well and had great coaching, I've had a great system around me and maybe some of the attributes that it takes to be a great professional quarterback aren't really the same things that require a college quarterback to be a great player.

"I feel some of my strengths are my awareness, my decision making. I've never been a great athlete and those tend to be some of the great players in college because when you are playing against linebackers who run 4.9 in college and you run 4.7 in college, you can outrun those linebackers. In the pros, those guys are running 4.5s. so if you run a 4.7 and you are a slow guy, you have to focus on the abilities that there are a lot of ways to be a great quarterback. You can throw it, you can run it, decisions, accuracy, arm strength. I've tried to improve with the coaching I have had and take that coaching so I can continue to find ways to improve your game.
What resonated with me most is the propensity to peak too early (e.g. Drew Henson), and how a second tier performer in one context can be a first tier performer in a higher context. There's a lot of spiritual truth in this, and it remind me of the travails and ultimate victories of Joseph of the Old Testament, who was kicked to the curb by his family, then his employer, and then his sommelier friend, only to be promoted from prisoner to Treasury Secretary in less than a day, which positioned him to save his family from starvation (along with the rest of civilization in that part of the world).

UPDATE: An even cooler bio of Ernie Adams by Wright Thompson. Adams is the "Q" to Belichick's James Bond; the Forrest Gump to the Baby Boomer generation of football:

Who, exactly, is Ernie Adams?

"I don't know what his job title is," linebacker Adalius Thomas says. "I didn't even know his last name was Adams."

"Ernie is a bit of a mystery to all of us," offensive tackle Matt Light says. "I'm not sure what Ernie does, but I'm sure whatever it is, he's good at it."

Finally, I approach receiver Wes Welker. "I'm writing a story about Ernie Adams," I tell him.

"Who?" he says.

"The guy who's always with Belichick who doesn't ever really talk."

"Oh," he says, recognition washing over his face. "Ernie."

Adams and Belichick met in 1970. Adams had been at Phillips Academy in Andover, an elite New England boarding school, for three years. In that time, he'd become a campus legend, famous for his quirky attire and habits. He wore high-top cleats and old-fashioned clothes, looked and talked like something from the 1940s. His three obsessions were Latin, naval history and, strangely, football. So he consumed books, mostly obscure titles, with a scholar's thirst. One he ran across was called "Football Scouting Methods" by a Navy assistant coach named Steve Belichick. As Halberstam details in his biography of Belichick, "Education of a Coach," only about 400 people bought the book: professional scouts and 14-year-old Ernie Adams. So, imagine Adams' surprise when, as his senior year was beginning, he walked out onto the football field and encountered a young man with "Belichick" written on tape across the front of his helmet.

Bill Belichick had recently enrolled at Andover for his senior year, hoping to raise his grades and test scores so he could get into a good college. A few questions confirmed Adams' suspicions. Are you from Annapolis? Are you related to Steve? Yes and yes. Belichick thought it was strange that a kid would have read his dad's book. Adams recognized something familiar in Belichick. He recognized himself. "He actually was pretty good in his judgment of people," says Hale Sturges, the professor in charge of South Adams Hall, where Adams lived.

They've been like brothers ever since, spending hours after practice breaking down film, diagramming famous plays of Vince Lombardi, Adams' idol. They snuck into Boston College practices to "scout." Together, they played on the undefeated Andover team, the first time the two men tasted perfection.

So, every week, the Patriots get the kind of analysis that only high-powered hedge funds or, say, NASA can afford. "Nine times out of 10," Bissinger says, "Ernie sees something nobody else sees."

That memory and those hours of studying film make him an unparalleled resource for assistant coaches. Want to know what a team does, and why? Want to know what a team has done on third-and-short in the red zone in the past 10 years on the road? Ask Adams. He'll know.

Adams' reach doesn't stop there. The Patriots are famous for compartmentalizing: The scouts can't watch practice, the game planners don't know who they are going to draft, and so on. But Adams is into everything. During the draft, according to Michael Holley's "Patriot Reign," he's in charge of running through the team's value chart, figuring out who will best fit their needs. This is the perfect assignment for someone who spent several years in the late 1980s as an analyst and trader on Wall Street and, as an investor, is known for spotting profitable trends shockingly early.

Adams' official title is director of football research, and he does a lot of that, too, trolling the world for things that might offer the slightest advantage. A year or two ago, an Andover teammate ran across an obscure out-of-print book on nonlinear mathematics. He thought Adams might find a use for it, so he mailed it to him. Adams had already read it. Or there's Rutgers statistics professor Harold Sackrowitz, who got a call from Adams a few years back. Adams wanted to talk about some research Sackrowitz had just completed, dealing with how teams try two-point conversions far too often. Adams sent the professor the Patriots' when-to-go-for-two chart, and asked Sackrowitz to tear it apart. Of the 32 NFL teams, the statistician told the New York Times, only the Patriots called.

Obviously, he admires great men. His reading list includes Warren Buffett, featured in Train's cult classic on investing, presidents, czars, prime ministers. Adams seems to enjoy the tiny spaces inside great lives, seeing them from behind the curtain. Could that be behind his close connection with Belichick?

Adams also seems to enjoy not only watching greatness work, but also seeing it fail. Carlisle thinks the central message of Halberstam's Vietnam classic appeals to Adams: that people incredibly well-educated and well-intentioned could be so flat-out wrong about something. It's a helpful notion to keep in mind about the conventional-wisdom-obsessed world of football, where pedigree and tradition dictate many overly conservative decisions. Indeed, when Adams agreed to participate in Halberstam's Belichick book, he did so with this caveat: For every two questions the journalist got to ask Adams about football, Adams got to ask one back about Vietnam. Did that trait allow Adams to make sure the mistakes of Belichick in Cleveland were not repeated? Maybe.

The Most Miserable U.S. Cities, according to Forbes

1. Detroit, MI
2. Stockton, CA
3. Flint, MI
4. New York City
5. Philadelphia, PA
6. Chicago, IL
7. Los Angeles, CA
8. Modesto, CA
9. Charlotte, NC
10. Providence, RI
Kurt Badenhausen wrote the article and offers links to photos and misery factors (via Mark Perry). New York's breakdown:
Commute times 150
Income tax rates 150
Superfund sites 78
Unemployment 99
Violent crimes 105
Weather 86
where 150 is the worst score and 1 is the best. Providence, RI (near where I grew up) has the second worst income tax rates, and people are still leaving in droves.

Quote of the day

Democracy is a very blunt instrument--Tyler Cowen
He goes on to say:

I believe that we should revere democracy as one of the modern world's greatest achievements. We should step off a British Airways flight with a tear in our eye, in appreciation for all that country has done to promote democratic government (sorry, former colonies, but perhaps you are democratic today). This is no exaggeration or blog tease: I want to see you crying at Heathrow. The future is far more likely to have "too little democracy" than "too much democracy." I do believe in checks and balances, but within a broadly democratic framework, such as we have in the United States.

That all said, we should not demand from democracy what democracy cannot provide. Democracy is pretty good at pushing scoundrels out of office, or checking them once they are in office. Democracy is also good at making sure enough interest groups are bought off so that social order may continue and that a broad if sometimes inane social consensus can be manufactured and maintained. We should expect all those things of democracy and indeed democracy can, for the most part, deliver them.

But democracy is very bad at fine-tuning the details of economic policy. Democracy is very bad at bringing about political solutions which are not congruent with the other sources of economic and social influence in a country. The solution is not to be less democratic, but rather to appreciate democracy for what it is good for. And the excesses of democracy should be fought with ideas, albeit with the realization that not everyone will be convinced. Those are the breaks, as democracy needs all the friends it can get.

Just as I love democracy, so do I love Chiles in Nogada. But I do not ask that Chiles in Nogada can solve most of the world's problems or for that matter get me to work in the morning. Social democrats and progressives often view democracy as a potential instrument of control, and as a way of giving us "the best policies." I do not, and that includes for my own economic views as well.

Wednesday, January 30, 2008

Intrade beats Zogby in predicting McCain as the Florida winner

on election eve. It turns out that Zogby was calling a statistical dead heat between McCain and Romney, given it's stated standard error rate, so Intrade wins this round.

Also, after these 9 head-to-head contests, the average Intrade election eve predicted winner percentage is 65%. My hypothesis that Intrade's winning percentage will converge with it's average election eve percentage.

Standings


Wins Losses Ties Pct Contender





3 2 4 0.556 Intrade
2 3 4 0.444 Zogby

Schedule





Score Date
State Party Intrade Zogby Winner








3-2-4 29-Jan
FL Rep McCain 2-way-tie McCain
2-2-4 26-Jan
SC Dem Obama Obama Obama
2-2-3 19-Jan
SC Rep McCain McCain McCain
2-2-2 19-Jan
NV Dem Obama Clinton Clinton
2-1-2 15-Jan
MI Rep McCain 2-way tie Romney
2-0-2 8-Jan
NH Dem Obama Obama Clinton
2-0-1 8-Jan
NH Rep McCain McCain McCain
2-0-0 3-Jan
IA Dem Obama 3-way tie Obama
1-0-0 3-Jan
IA Rep Huckabee 2-way tie Huckabee

Freakonomic online dating anecdote

from Steven Levitt:

A recently divorced friend of mine just dipped her toes into the online dating world for the first time. She entered her information: lives in a large city, late thirties, divorced, well-educated, loves to dance, etc. Then she let the algorithm find her soul mate.

I’d love to say that it was like the old “Pina Colada” song by Rupert Holmes and the perfect match the system spit out was her ex-husband.

Nope, it was her boss.

25 jobs paying over $50,000 per year that don't require a 4 year college degree

here (via Andrew Roth). Here's the Top 10:
1. Air traffic controller: $102,030

2. Funeral director: $79,517

3. Operations manager: $77,839

4. Industrial production manager: $73,000

5. Transportation manager: $72,662

6. Storage and distribution manager: $69,898

7. Computer technical support specialist: $67,689

8. Gaming manager: $64,880

9. First-line supervisor/manager of police and detective: $64,430

10. Nuclear power reactor operator: $64,090
Yes, each of these roles do require significant amounts of trust, dependability, testing, competence, customer focus and/or self-learning. Still no free lunch--if you want one of those, look at a place like the UN.

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Corn ethanol

Russ Roberts on his unabashed love of the Patriots


rivaling only the passion of Maria Menounos:

I remember the first Patriots championship appearance. It was January 1964 and I was nine years old. The Pats suffered a 51-10 blowout at the hands of the Chargers. The next championship game was a 46-10 shellacking by the Bears, at the time, a Super Bowl record for the largest margin of defeat. Then in 1997, a loss to the Packers gave the Patriots a perfect record in championship games -- 0-3.

OK, the Pats are no longer the Patsies. They've won three of the last six Super Bowls. But thinking historically, a victory on Sunday will merely push them over .500 for the first time.

But that's my perspective. Yours is different. Even my friends confess they're rooting for the Giants. Some are Dolphin fans hungry for Schadenfreude. Some just hate the Patriots the way any morally upright, decent human being hates the Yankees. And when you add in the recent success of the Red Sox and the Celtics, it's an embarrassment of riches for Boston sports fans. The Patriots seem perilously close to becoming the Yankees of football.

But not really. First of all, no Yankee fan is ever embarrassed by the riches of those 26 titles. An embarrassment of riches is an oxymoron for a New Yorker.

But the real reason to root for the Patriots is the triggerman of the greatest offense in football history, Tom Brady. Maybe his girlfriend is a little more attractive than yours, but put that aside for a moment. Brady is Joe Pendleton in "Heaven Can Wait." If you're unfamiliar with the movie, Joe Pendleton is the quarterback mistakenly taken before his time by an overeager angel. He gets put back in the dumpy body of Mr. Farnsworth, an unathletic businessman. Through an incredible training regimen, passion for the game, and his innate football smarts, Pendleton manages to take his team to the Super Bowl, Farnsworth body and all.

Isn't that Tom Brady all over? He's a sixth-round draft choice who didn't always start in high school or at Michigan. His 2000 combine workout video surfaced this year, and it showed he had a lot of Farnsworth in him -- an unimpressive physique and a sloth-like 40-yard dash. His high-school coach says "I've had better natural athletes than Tom Brady," and you have the feeling he's being kind.

Tired of hearing about the 50 touchdown passes? Then think on this: Last year, Brady's top receiver was Reche Caldwell. The year before? Deion Branch. The year before that? David Givens. None of those guys are going to the Hall of Fame. Their production dropped -- plummeted, sometimes -- after they left the Patriots.

In 2005, Brady signed a long-term contract for less money than he could have received on the open market, in hopes of helping the Pats sign a better supporting cast. When the team then signed bargain-basement receivers, he didn't complain. While Peyton Manning was throwing to Marvin Harrison and Wayne Clark last year, Brady was throwing to Caldwell, a 35 year-old Troy Brown, and Doug Gabriel. But Brady kept his mouth shut, did his job and came within four points of going to the Super Bowl.

There are other nice stories on this team. There's Wes Welker, the undrafted wide receiver who has flourished. Tedy Bruschi, the stroke victim who still plays the game he loves with élan. Brown, who played defensive back when the team needed him to. (I just have a feeling Troy will contribute somehow, on Sunday.) How can you not like those guys?

As for the humorless guy in the hoodie, I even like him too. (Sorry.) I like his injury reports: Brady's injured shoulder makes him only "probable" week in and week out. I like his sartorial splendor. I like his no-nonsense commitment to excellence. I like that he's been successful even as his assistants come and go.

Is Bill Belichick a cheater? Well, I'd like to know if he's the only coach to tape another team's signals -- or just the only coach to get caught. I'd like to know if it helps a lot or a little to have video, rather than the legal photographs. Either way, he broke the rules. He has paid -- and will pay, via that lost draft pick.

Besides, Belichick majored at Wesleyan in my favorite subject -- economics. And no one understands one of the fundamentals of economics -- the importance of tradeoffs -- better than Belichick and his partner in playing the salary cap, the unsung but essential VP of Player Personnel, Scott Pioli.

In today's WSJ.

Don Surber is more sanguine on McCain than me

He posits:

Congratulations, John McCain.

The baggage we know well. From the Keating Five scandal to campaign finance deform to immigration amnesty, McCain has a lot of baggage. But he also carries his own luggage, does he not?

There is a lot to be said for humility and he’s been knocked down a few times. I see he has regained his legs each time.

Many conservatives no doubt will freak.

My wise counsel in this is the philosopher who pens under the pseudonym Basil.

Bush was not his first choice in 2000. Dole was not his choice in 1996. Reagan was not his first choice in 1980.

I can do him one better: I voted for Carter. Maybe I should wear a T-shirt: “What do I know? I voted for Carter.”

Basil advises people keep their options open: “So, now that Fred’s out, it looks like I’m going to end up voting for someone who wasn’t my first choice.”

That’s how the game is played. You try your best, you lose, you shake the winner’s hand, and you play again.

You do not take your ball and go home.

Look at Al Gore. Rather than gracefully accept a close defeat in 2000 and come back later, he got all angry and sued. Look at him now. He has all these awards but he knows he’s a fraud. He knows global warming is a myth. If he really believed that crap, he would not burn up 20 times the electricity of mortal men.

But hey, what do I know? I voted for Carter.

History may provide some guidance. In 1932, FDR was all the rage. But 28 years later, JFK did not run as an FDR Democrat. He said it was time for a new generation.

It has been 28 years since Reagan was nominated.

What he stood for as president included being pro-life, pro-gun, limit the government, cut taxes, cut spending, help the truly needed, and stand up to communism. At various times in his life, Ronald Reagan stood at the opposite ends of some of those positions.

But he learned. And by age 70, Ronald Reagan was finally a Reagan Republican.

I'm thinking about voting for Obama. While he could end up like Jimmy Carter (my least favorite president of my so-called life), his oratory sets higher aspirational goals. Plus, Austan Goolsbee is pretty good for an advisor, and I think he understands economic policy better than he lets on (given his voter base).

I'm just worried that, like Carter's appeasement approach to foreign policy, Obama could reflate global threats against democratic nations.

UPDATE: McCain is looking to punish my family and friends? This is the worst thing I've read today:
I think there are some greedy people on Wall Street that perhaps need to be punished.

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Mondrian or Warhol?

Consumerist art, or artistic consumerism, via Stephen Dubner:

Arnold Kling blogs personally and poignantly about his frustrations with the healthcare system

here:
What I want for my father is the best possible combination of dignity, lucidity, and absence of pain. The operative word is possible, because what is attainable is limited. Moreover, there are trade-offs among these goals.

But what you deal with are people who are doing their job. For example, the cardiologist's job is to make sure his heart does not give out, even if it means he lies on his back for so long that the prospects for restoring diginity recede. Everyone wants to shunt him around, giving him more Hansonian medicine, which detracts from his ability to remain lucid.

For the larger goal of trying to do the best with his remaining life, nobody is in charge and nobody is empowered. Particularly in that big hospital. I'll probably be back there soon, but I don't know what medical decisions would best serve our goals and I don't know how to get the system to work for us.
My mom has had plenty of health issues, and I feel similarly to Arnold. I'd like folks to step back and see the bigger picture, but they get paid to focus in narrowly, and they get paid in such an intermediated way that there are all these invisible interests between the families of the sick and the health service providers.

ADP Payroll reports 130,000 new jobs

90,000 more than forecast. S&P 500 futures jumped 0.5% on the news.

Why, we were just talking about this yesterday!

UPDATE: 4th Quarter GDP was reported out at 0.6%. The Intrade recession contract will only expire at 100 with 2 successive negative quarterly GDP numbers, and they are the final numbers (not the first two numbers reported). While there is a chance that 4Q could revised below zero, the buyers of this recession contract must be a little disappointed (unless, like me, they sold higher):



DISCLOSURE: I am short US.RECESSION.08

Tuesday, January 29, 2008

The most interesting thing I read today

was about the inspirational merits of translation, via How The World Works:

Only a handful of people in the world can read Tocharian; mastering the language is not a path to notoriety. But Ji, the author of numerous books and monographs, has other claims to fame. Perhaps most amazingly, he secretly translated the entire Indian epic, "The Ramayana," from the original Sanskrit into Chinese, while experiencing the travails that afflicted nearly all Chinese intellectuals during the Cultural Revolution.

Earlier this week, the Indian government bestowed one of its greatest honors, the Padma Bushwan award, on the 97-year-old Ji, in honor of his contributions to cross-cultural understanding. In the realpolitik of Chinese-Indian diplomacy, the move was immediately interpreted as as indicating a positive direction in the relationship between the two countries.

HTWW also has a fresh perspective on C.S. Lewis here.

History (on so many levels)


via Don Surber.

UPDATE: Josh Hendrickson has coverage of Herbert Hoover's 1929 stimulus package.

Monday, January 28, 2008

2008 Recession odds down to 16%?

There have been some recent posts about how unemployment remains low, where in previous recessions, unemployment spiked up sharply. This WSJ Economics blog post talks about Tim Kane's model, which is predicting a 16% chance of recession. A few days ago, Mark Perry had this graph at his blog:


Of course, all this could be a warmup for Bush's last State of the Union address.

Here's the latest Intrade recession chart:


DISCLOSURE: I am short US.RECESSION.08

UPDATE: Greg Mankiw links to another Kane paper, which focuses on unemployment insurance predictiven power of coming recession, and which is currently pricing a 35.5% chance for recession.

The Republican Florida Showdown: Intrade v. Zogby

Intrade
Zogby
Candidate





51%
33%
McCain
46%
30%
Romney
3%
14%
Giuliani


11%
Huckabee


2%
Paul


3%
Someone else


8%
Not Sure
0%


FIELD

If McCain (agreed winner) or Paul (within Zogby error) wins, the contest will end in a draw. If Romney wins, Intrade will take the contest. If any other candidate wins, Zogby will take the contest.

UPDATE: It turns out that Zogby was calling a statistical dead heat between McCain and Romney, given it's stated standard error rate, so Intrade wins this round.

Intrade and Zogby end in a draw for the SC Democratic primary

Standings


Wins Losses Ties Pct Contender





2 2 4 0.500 Intrade
2 2 4 0.500 Zogby

Schedule





Score Date
State Party Intrade Zogby Winner








2-2-4 26-Jan
SC Dem Obama Obama Obama
2-2-3 19-Jan
SC Rep McCain McCain McCain
2-2-2 19-Jan
NV Dem Obama Clinton Clinton
2-1-2 15-Jan
MI Rep McCain 2-way tie Romney
2-0-2 8-Jan
NH Dem Obama Obama Clinton
2-0-1 8-Jan
NH Rep McCain McCain McCain
2-0-0 3-Jan
IA Dem Obama 3-way tie Obama
1-0-0 3-Jan
IA Rep Huckabee 2-way tie Huckabee

The election eve prediction was posted here.

Friday, January 25, 2008

Jed Christiansen with a fanastic primer on prediction markets and elections

Read the whole thing, via Chris Masse.

Jed points out the weakest point of my Intrade v. Zogby Showdown contests: Intrade contracts are winner-take-all, while Zogby poll statistics are linear probabilities. I attempt to normalize the "predictiveness" between them by looking first at the clear leader, if there is one, and then compare candidate probabilties to break ties. I also take snapshots on the eve of each election, a T-1 approach.

However, he also affirms points which I've made in the past:
What this also means is that prediction markets have to be “wrong” in order to be right. If all of the contracts trading at 80% actually occurred, the market would be incorrect; 1 in five contracts trading at 80% has to lose!

So when do we judge how accurate a prediction market is? Do we take the price from the week before an event? The day before? For an election, do we take it when the polls open? When the polls close?

In my opinion, it all comes down to your goals. InTrade lets traders trade contracts until a winner is settled, because they want an active and accurate marketplace. This has allowed contracts to swing wildly through the day, perhaps most notably in the 2004 Presidential election when leaked exit polls in the afternoon indicated a strong showing for Kerry, only to see actual results not match up with these polls. Other markets look to generate forecasts, so they would end at the point where the information from the forecast was required.

A binary contract is either correct or it isn’t; there’s no good way to assess the quality of a single data point. What we do is assess the calibration of the marketplace. Of all the contracts judged with a 20% probability, do they happen 20% of the time? Of all the contracts judged with a 95% probability, do they happen 95% of the time? With sufficient data we can draw a calibration curve to determine accuracy in this manner. Prediction markets typically do quite well here.

Prediction markets should be compared to other forecasting methods, and not perfection. Let’s match up prediction markets against the cable-news talking heads and see who’s better. (I haven’t done so, but I would suggest that prediction markets would perform well.)
I hypothesize that individual contests will look quite bumpy. Across the entire set of data, which will approach 100 data cohorts, we'll be able to establish some clear trends and contrasts, and perhaps have a better designed experiment in 2012.

David Brooks, the journalistic Eli Manning?

David Brooks is not on my list of reads, but thanks to a thumbs up from Tyler Cowen, I read his latest and it is good:

The Greed Narrative goes something like this: The financial markets are dominated by absurdly overpaid zillionaires. They invent complex financial instruments, like globally securitized subprime mortgages that few really understand. They dump these things onto the unsuspecting, sending destabilizing waves of money sloshing around the globe. Economies melt down. Regular people lose jobs and savings. Meanwhile, the financial insiders still get their obscene bonuses, rain or shine.

The morality of the Greed Narrative is straightforward. A small number of predators destabilize the economy and reap big bonuses. The financial system is fundamentally broken. Government should step in and control the malefactors of great wealth.

The Ecology Narrative is different. It starts with the premise that investors and borrowers cooperate and compete in a complex ecosystem. Everyone seeks wealth while minimizing risk. As Jim Manzi, a software entrepreneur who specializes in applied artificial intelligence, has noted, the chief tension in this ecosystem is between innovation and uncertainty. We could live in a safer world, but we’d have to forswear creativity.

When a new instrument enters the market, it takes a while before people understand and institutionalize it. Whether the product is high-yield bonds or mortgage-backed securities, there’s a tendency to get carried away.

In the first stage of this adolescence, investors look around and see everybody else making money off some new instrument.

Then there’s a moment when people realize how stupid they have been. They’ve bought a pile of subprime mortgages without really knowing what they’ve purchased. The ratings agencies suddenly don’t look so reliable. The cycle of overconfidence becomes a cycle of underconfidence because nobody knows who is holding worthless paper.

Then, finally, maturity sets in. Those who have lost great gobs of money get fired. People still find the new product useful, but within parameters and with greater safeguards.

The lesson of the Ecology Narrative is that, in most cases, the market corrects itself. Maybe this year banks will change their pay structure so there’s not so much emphasis on short-term results. Maybe companies will change their boards to improve scrutiny over complex new instruments. In short, markets adapt.

People who embrace the Ecology Narrative don’t like the offensive bonuses that get handed out on Wall Street. They just don’t see any way the government can curtail them without rending the fabric of the ecosystem. They don’t like the periodic crises, but don’t see how government can prevent them without clamping down on innovation. The challenge is to give people the means to withstand the perturbations.

The Ecology Narrative is not morally satisfying. I wouldn’t bet on its popularity as a backlash against Wall Street and finance sweeps across a recession-haunted country. But the Ecology Narrative has one thing going for it. It happens to be true.

Brooks reminds me of Eli Manning, in that he might be popularly underestimated.

Too worried over Social Security?

I've been worried for more than a decade about how the ratio of payers into Social Security moved from 40-to-1 at the program's inception to 3-to-1 today (and projected to be 2-to-1 when the last of the Baby Boomers start collecting benefits).

Bryan Caplan raises a different ratio from payers-to-collectors: Workers-to-Dependents, which is actually rising from 1.05 in the Sixties to 1.27 in 2030.

The decrease of children is offset by the increase of women in the workforce.

UPDATE: Bryan has provided a nice graph in a subsequent post:

The Democrat SC Showdown: Intrade v. Zogby

Intrade
Zogby
Candidate





90%
38%
Obama
8%
25%
Clinton
1%
21%
Edwards


1%
Kucinich


1%
Gravel


5%
Someone else


7%
Not sure
0%


FIELD

If Clinton or Edwards wins, Zogby will be declared the winner. If any other candidate wins, the contest will be called as a draw. The Intrade snapshot was taken at 2:20pm today.

For each contest:
1. Look at the highest value Intrade contract and the highest Zogby poll (beyond error rate) to determine each source's predicted winner of a state contest

2. If neither Intrade nor Zogby predicts the winner, the candidate with the higher value between Intrade and Zogby (beyond the Zogby error rate) will win that contest.

Gates & Buffett: Conflicted Capitalists?

Don Boudreaux talks about about Bill Gates' Davos speech that dilutes capitalism:
I'm delighted that Bill Gates is reading the important work of the late Julian Simon ("Gates Calls for Kinder Capitalism," January 24). When he digests Mr. Simon's central idea - that human beings in market economies are "the ultimate resource" - Mr. Gates might then recognize that there is no need to change capitalism so that it becomes "creative." Capitalism has always been creative. It is inherently creative.
He also links to this John Tamny piece. I've posted several times in the past about Buffett's take, which is similar to Gates', and seems proven in his large charitable donation to the Gates Foundation.

Both Buffett and Gates were born to wealthy parents. On the other hand, Larry Ellison and Paul Allen (also americans on the Forbes top 20 billionaires list) grew up with parents of more modest, middle-class means. And while they are active in charitable works, I don't seem to hear them wanting to take more money from working families and distributing that money--through the inefficient intermediary of government--to families who are working less.

I think there's strong pathology of guilt that drives the children of the rich. Maybe that's a good thing, but please keep your hands off everybody else's money. Thanks.

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A yield curve undulation of Shakira proportions


via Eddy Elfenbein, who posits:

This is the point I'm trying to get across. I believe the Fed's rate cut was NOT a cut to prop up equity prices, but a response to the turmoil in the bond market. If anything, it was to pop the bond bubble--and as you can see from the post below, the Fed's job includes promoting "moderate long-term interest rates."

I'm not saying I agree with it, but try to look at this from the Fed's point of view. In just a few months, a flat yield curve completely unraveled.

Hips don't lie. Or maybe only as much as the bond market.

Thursday, January 24, 2008

More Krugman deconstructed

Krugman has been deconstructing himself a lot lately, but when he tries to revise Carter / Reagan history, I'd like to post some points by Tom Firey:

In short, Krugman makes four criticisms: Reagan’s policies resulted in (1) stagnant middle-class incomes, (2) an increase in the poverty rate, (3) stagnancy in productivity growth, and (4) stagnancy in “American business prestige.”

Are those claims true and do they show that Reagan’s economic policies “did fail”? Let’s look at the data. (Hyperlinks connect to the relevant federal data sets.)

From 1981 to 1988 (which roughly corresponds with Reagan’s tenure), median real family income grew 11.1 percent while real household income grew 10.3 percent. Those growth rates are in the top third of the 30 eight-year periods from 1968–1975 to 1998–2005.

Poverty topped out at 12.3 percent for families and 15.2 percent for individuals in 1983. From there, though, poverty under Reagan moved downward steadily, reaching 10.4 percent for families and 13.0 percent for individuals in 1988.

Krugman is correct that the data show productivity growth under Reagan was around 1.4 percent a year, not much higher than the previous period 1973–1979 (1.2 percent) and a little less than the subsequent period 1990–1995 (1.5 percent). Those numbers are all considerably lower than the 2.8 average annual increase for 1947–1973 and the 2.5 percent for 1996-2000.

Krugman does not mention the productivity rate for 2000–2006; at 2.7 percent, productivity growth is even higher under the George W. Bush administration than it was in the best of the Clinton years. Again, curiously, Krugman does not credit G.W. Bush with being even more successful economically than Reagan or Clinton.

This raises a question: If the average productivity growth rate increased over the last five years of the Clinton administration, and that growth continued (at a slightly higher rate) through the first five years of the G.W. Bush administration, then does policy (or politics) have much to do with productivity?

Krugman’s claims about the Reagan record are misleading and, in the case of middle-class income, outright false. But more significantly, the concept underlying Krugman’s column is facile.
and his colleague Daniel Griswold:

Krugman wrote in a January 21 column for the New York Times that the economic record of President Reagan was one of failure. The Reagan years did encompass a recovery from a steep recession, he acknowledges, but then, “By the late 1980s, middle-class incomes were barely higher than they had been a decade before — and the poverty rate had actually risen.”

Let’s bore in on the poverty numbers and the operative phrase “a decade before.”

As everyone knows, Reagan was in office for exactly eight years, from January 1981 to January 1989. To compare his last full year in office (1988) to “a decade before” would take us back to 1978, a period that would include the last two years of Jimmy Carter’s single term. Those two years, it turns out, were absolutely brutal for America’s poor.

The last half of Carter’s tenure was marked by double digit inflation, record high interest rates, and a sputtering economy that fell into recession in the first half of 1980. That stagflationary mix caused the poverty numbers to soar. From 1978 to 1980, according to the Census Bureau, the number of Americans living below the poverty line rose by 4.8 million and the poverty rate jumped from 11.4 to 13.0 percent.

The poverty rate continued to climb under Reagan as the nation labored through a steep recession in 1981-82, a recession largely caused by the Federal Reserve Board’s efforts to slay the Carter-era inflation. After peaking at 15.2 percent in 1983, the rate declined steadily through the rest of Reagan’s time in office. By his last year in office, the poverty rate was exactly the same—13 percent—as it was in Carter’s last year in office. That’s nothing to crow about, but neither is it an increase or an obvious sign of failure.

To compare the last year of Reagan’s presidency to 1978 has the effect of saddling the Reagan record with the last half of the Carter presidency—a neat statistical trick worthy of the current presidential campaign season.

C'mon, Professor. Even Carter's aides have embraced the truth.

The most surreal thing I read today

is by Dan Shaughnessy, interviewing Bill Parcells, on his time with Bill Belichick and Tom Coughlin:
"They're serious-minded guys," says Bill Parcells, the man who brought Belichick and Coughlin together with the Giants from 1988-90. "But both of them have a good sense of humor. You don't always see it, but I've had quite a few laughs with both of 'em."

"Bill and Tom have different personalities. Bill would be a little more reserved. His demeanor is much more laid-back. I would say you would have a lot harder time figuring out what Bill was thinking than what Tom was thinking. These guys are both serious-minded fellas. They're both serious about their job. They both really have a lot of passion for football.

"They both came up paying their dues. Bill was holding cards for [Baltimore Colts coach] Ted Marchibroda, driving him around when he was young, and Tom was lining the fields at Rochester Institute of Technology. He started the program up there, so both of them came up kind of the way I came up. I was at Hastings College doing the wash after practice. I think all of us that came up that way, usually you have a greater appreciation for what the game is about.

"What Bill has done there in New England is remarkable. There's no other word for it. And I was just happy to see Tom win because he'd been taking a bunch of crap here in New York. They're just not going to be able to say anything now."

Belichick, a Parcells protégé for more than a decade, was New York's defensive coordinator in the three seasons that Coughlin worked with the Giants' wide receivers.

Parcells dismisses the notion that one must be a "players' coach" to succeed in 2008.

"I never have agreed with that," he says. "I think players are interested in people that can help them perform. I think you just have to be yourself and I think both of these guys are themselves and I think it comes across. Their teams reflect what they are, and that's a sign of good coaching."

Parcells never let his assistants talk to the media.

"That's just the way it was," he says. "They have rules now where the assistants have to be available. I know the media kind of resents the fact that they can't talk to everyone in the organization from time to time, but if you really think about it - can you imagine the editor of The Boston Globe letting all of his guys talk about policy and why they're doing what they're doing? If you really think about it, it's not that outlandish a policy. I was an assistant for three years [1980 in New England under Erhardt, and '81 and '82 with the Giants under Ray Perkins]. We didn't talk to the media. We tried to stay as far off the radar as we could."

Belichick and Coughlin must not have watched Parcells's press briefings. Much more fun in front of the mikes, the Tuna has no opinion on the podium comportment of his protégés.

"I see two guys that are serious about their team and they're trying to complete their obligatory responsibilities with the media," says Parcells. "They really are, and I don't mean that in a negative way."

What about Belichick's astonishing ability to remain obtuse about the most benign of topics?

"That's the way he does things," says Parcells. "I certainly wouldn't pass judgment on any of that. Whatever the hell he's doing, somebody else ought to copy it, because he's doing pretty good.

"You want to see the people that you know well be successful. And you're happy when that happens.

"I think I'm at the age where I enjoy that more than I used to."

I'm not a big fan of Shaughnessy nor Parcells, but do greatly appreciate Belichick. And I recently posted about how I was the biggest believer of the Giants in NYC, at least from August to December. And the guys in the Tradesports pit can vouch for that belief.

But I've regained a little respect for Curly Haired Boyfriend and Coach Slim Fast today. That was a good interview.

UPDATE: Osi Umenyora is not getting any respect from me right now. He could end up as the Roger Clemens of football if he keeps this up.

In search of insource v. outsource equilibria

via Tim Harford:
So, one day the boss has this crazy thought. He asks himself a question that has never occurred to him before: Why have any employees at all? Why have a building? Why not just sit home, wearing his jammies and bunny slippers, sipping a nice cup of tea, and outsource everything? He can write contracts to buy parts, he can pay workers to assemble the parts, and he can use shipping companies to box and transport the product.

You can tell that this parable is not going to end happily ever after. As Munger argues, there's a balancing act: too little outsourcing and a firm becomes a socialist state, denied incentives or price signals; too much and the problem of coordinating all the contracts becomes impossible.

It's worth thinking about how changing technology may alter this balancing act. The answer is not obvious. Some outsourcing decisions are made much easier to coordinate thanks to the internet and all the rest. At the same time, inter-firm communications also improve. And if the world is full of firms making more complex, intangible products, that may favour more implicit contracts and therefore larger firms. I simply don't know the answer and I'm not sure anyone else does either.

Marxist economics in one minute

by the estimable Steve Conover.

If you have another minute, read the comments, too.

Megan McArdle breaks Democrats into 3 logically exclusive groups

She asks, "Why Isn't this a null set?":
Democrats who believe that the GOP southern strategy is a defining moment that discredits the entire movement

Democrats who think that the Clintons are very deliberately playing up Obama's race in order to drive white voters into Hillary's camp

Democrats who will vote for Hillary Clinton in November once she secures the nomination.
There may be more, but these seem to have significant coverage.

Pelosi, Boenher, and Paulson announce the stimulus package

It sounded like 116 million Americans will be receiving $300 each. That's $35 billion.

I wonder what people will be spending their newly found wealth--3 fill ups of the Hummer gas tank?

I also wonder if consumer inflation spikes up in 2008 (by $35 billion or so).

SI Jinx? How about the Risk Magazine Jinx?

Many of you may have heard about the Sports Illustrated Jinx. I've discovered the possibility of the Risk Magazine Jinx:
The news that a rogue trader at Société Générale, the French bank, somehow ran up a 4.9 billion euro ($7.2 billion) loss in stock index futures without management noticing is provoking incredulity at the World Economic Forum in Davos.

Bankers, speaking anonymously, were amazed and dismayed. One worried this would further damage the reputation of banks for being able to manage their risks.

The news may also be provoking a little embarrassment at Risk Magazine in London. In this month’s issue, it name Soc Gen the “equity derivatives house of the year.” — Floyd Norris

Another 2007 winner was Merrill Lynch. This run extends back to the mid-Nineties when they named UBS the Derivatives House of the Year back in 1996, only to see that bank blow up in 1997.

My full post on Jerome Kerviel, the SocGen trader, is here.

Arnold Kling on the Keynesian emperor and lack of clothes

here:
Once you accept the notion that jobs can be scarce, you can turn the rest of economics upside-down as well.

1.
In macroeconomics, more saving is "contractionary" and more consumer spending is "expansionary."

2.
In macroeconomics, it is bad to have foreign trade in which the value of what we buy is greater than the value of what we sell. Thus, a trade deficit is "contractionary" and a trade surplus is "expansionary."

3. In macroeconomics, a balanced budget or surplus can be "contractionary," while a deficit is "expansionary."

No wonder first-year economics students end up knowing very little economics. What they learn in micro gets canceled out in macro.

Classical economics does not allow for such a thing as a "general drop in demand for goods and services." Again, in classical economics, we have unlimited wants. There is never a need to increase demand.

The problem for classical economics is to explain the high unemployment rate of the Great Depression. As the late Nobel Laureate Franco Modigliani said in a famous address, are we to believe that the Depression was a massive outbreak of laziness?

My current view is that what we call "cyclical" unemployment is in fact a severe version of structural and/or frictional unemployment. During the Great Depression, many government policies, such as the National Recovery Administration, served mainly to create structural unemployment. There also was an unusually high level of frictional unemployment, as the spread of motorized road transport greatly altered the efficient structure of production.

Given this theoretical outlook, I would be inclined not to forecast a severe recession in 2008. There have not been any major developments that would have an impact on structural unemployment.

But I may be wrong. There is a chance that the Keynesian story is correct. If unemployment were to spike up toward 10 percent, I would be very sympathetic to attempting Keynesian remedies, including monetary expansion and deficit spending. But for now, the main "crisis" motivating "stimulus" is the fact that this is an election year.


DISCLOSURE: I am short US.RECESSION.08

Jesus follower Rick Warren impresses cosmopolitan athiest

Felix Salmon. Maybe it's just the Davos air, but in a crowd of such luminaries, the fact that Warren stands out is impressive.

It's pretty amazing that a bestseller "self-help" author could sell a book called the Purpose Driven Life that starts off the bat saying:
It's not about you.
I mean, what self-help consumer would buy such a book?

Unintended Consequences and the Irrelevant Minimum Wage

both at Cafe Hayek:

Some people seem to have misunderstood the point about this post on minimum wages. A lot of people I speak to, not just "regular" students, but legislators and journalists who I sometimes teach, think that only regulations or unions keep businesses from exploiting workers. They are shocked to discover that less than 10% of the private work force is unionized and that somehow, most workers, something over 96%, maybe closer to 99%, manage to make more than the minimum. Usually half of these groups when I survey them think that at least (at least!) 20% of the work force earns the minimum wage or less and that only legislation keeps it from being lower. But legislation turns out to be relatively unimportant compared to supply and demand—that is, competition. if you try to pay less than the going rate for the skills you want to hire, you can't attract workers.

Meanwhile, Tim Worstall points out something I missed:

Unfortunately, on the page he’s taken his information from he’s missed one thing which makes his case even stronger.

Nearly three in four workers earning $5.15 or less in 2006 were employed in service occupations, mostly in food preparation and service jobs.

That’s your waitron units and barkeeps folks. And what do we know about people who do these sorts of jobs? Well, perhaps you have to have actually done them (as I have, everything from the graveyard shift in a Denny’s to tending bar around the corner from this guy’s place): they all make tips. In fact, so much so that there is (or at least used to be when that BLS report was prepared) a special minimum wage for those in such jobs, one lower than the official Federal minimum wage.


Alex at Marginal Revolution has some interesting things to say on unintended consequences:

The law of unintended consequences is what happens when a simple system tries to regulate a complex system. The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives. Society in contrast is a complex, evolving, high-feedback, incentive-driven system. When a simple system tries to regulate a complex system you often get unintended consequences.

Unintended consequences are not restricted to government regulation of society but can also happen when government tries to regulate other complex systems such as the ecosystem (e.g. fire prevention policy that reduces forest diversity and increases mass fires, dam building that destroys wet lands and makes floods more likely etc.) Unintended consequences can even happen in the attempted regulation of complex physical systems (here is a classic example involving turbulence).

Read the whole thing.

Junior SocGen trader Jerome Kerviel manages to lose $7 billion


Pictured here on the left, Monsieur Kerviel must have had more than 5 times his losses in notional futures positions, and was able to hide them successfully for several months.

FT Alphaville update here. WSJ article here.

So maybe that new low made yesterday morning was the Societe Generale unwind, and that VIX spike the day before was not due to economics.

UPDATE: FT has the mugshot.


UPDATE: Commenter etienne asks how this could be covered up for so long? My understanding is that he couldn't have done it alone. A lot of capital needs to be posted to the clearing corporation and as margin. That pledging must be done with the approval of senior officers in the bank. Monsieur Kerviel could be a scapegoat, like Nick Leeson was.

UPDATE: The head of SocGen investment banking, Jean-Pierre Mustier, says:
The specific pattern of his transactions was that they used fake transactions rolled on a permanent basis
Kerviel may have been booking bogus swaps against his futures positions, and someone else in SocGen may have gone to a named counterparty looking for a cash payment.

UPDATE: Bloomberg confirms my theory:
``The transactions that were built on the fraud were simple, positions linked to rising stock markets, but they were hidden through extremely sophisticated and varied techniques,'' Bouton, 67, said in a letter posted on the bank's Web site.

His approach was to balance each real trade with a fictitious one, and his ``intimate and perverse'' knowledge of the bank's controls allowed him to avoid detection, co-Chief Executive Officer Philippe Citerne told reporters. He rolled over his real trades before they reached maturity.

The trades first came to management's attention on the evening of Jan. 18, when a compliance officer found a trade that exceeded the bank's limits, Mustier said. When Societe Generale called the counterparty, they were told the trade didn't exist.

He ``breached five levels of controls,'' Christian Noyer, the governor of the Bank of France, said at a press conference today. He described the trader as ``a computer genius'' and said he was told he was ``on the run.''

Wednesday, January 23, 2008

The 1985 Superbowl Patriots see themselves in the 2007 Superbowl Giants

reports Nick Carfado:

It was long ago, but Steve Grogan, Pete Brock, and Steve Nelson can't help but see the spitting image of the 1985 Patriots in this season's New York Giants.

"There are certainly a lot of things that are similar," said Brock, who was the center on a very good offensive line in '85. "Having to win three playoff games on the road against all odds, to being given no chance to win the AFC Championship - us against the Dolphins and the Giants against the Packers - and now heading into a Super Bowl against a juggernaut like the Patriots. Back then, we were off to face the Bears, who were truly an incredible football team."

The '85 Patriots won three of their last four regular-season games to finish 11-5, tied for second with the Jets in the AFC East and good enough for a wild-card playoff berth. They beat the Jets, Raiders, and the AFC East champion Dolphins on the road in the postseason.

Likewise, the Giants beat Tampa Bay, Dallas, and Green Bay on the road in the playoffs. In fact, they have won 10 consecutive games on the road.

Few gave the Patriots a chance against Miami in the AFC Championship - the Fish hadn't lost to the Patriots at the Orange Bowl since 1966 - but the 31-14 victory culminated an improbable year for coach Raymond Berry's squad.

"The Miami game was so emotional," said Brock. "It broke a 19-year losing streak at the Orange Bowl. It's not an excuse for why we lost so badly [in the Super Bowl], just an explanation. Maybe it'll be the same thing for the Giants, who will have come off an emotional overtime win in frigid weather at Lambeau Field, the same way nobody gave us a chance."

Let's hope The '85 Pats are right, although I have a lot of respect for this Giants team. They almost won their last regular season game against the Patriots. I drafted Eli Manning to be my fantasy QB before Labor Day when none of the Giants fans in the league wouldn't touch him, and wanted Coughlin out. No Giant fan was thinking playoffs, even as late as Thanksgiving. Just a lot of grumbling every time I brought the team up and said how good they were looking.

So this boy from New England was the biggest Giants believer and booster in NY that I've met in NYC.

Until the conference championship games this past Sunday.

DISCLOSURE: I am long NFL.PATRIOTS

Very interesting update on the New York City Bailout during the 1970s

via Stephen Dubner:

I was fascinated by Felix Rohatyn’s story about global leaders urging President Gerald Ford not to let New York go bankrupt in the 1970s (”City to Big Mac: So long,” BTW, Nov. 19). I have another story, one I’ve kept to myself for over 25 years. I was in the middle of this effort, as assistant to Mayor Abe Beame and director of New York’s Washington office. As such, I helped lead the effort to obtain loan guarantees. One night I was in the office of the late Senator William Proxmire (D-Wis.) [then chair of the Senate Banking Committee] along with New York State lobbyists. Proxmire was on the phone with Chicago Mayor Richard J. Daley (the current mayor’s father) and motioned for us not to let on we were there.

After Proxmire hung up, he told us Chicago banks were pushing to let New York go bankrupt in order to hurt the city’s “money center” banks. In those days, banking was not national, and New York and Chicago were in feverish competition. Proxmire told us Daley would publicly support loan guarantees but not help much behind the scenes.

The senator asked us not to tell anyone about this, not even Beame or Governor Hugh Carey, since it would only hurt getting federal assistance. Ford’s stance against New York was bewildering to me, since a former New York governor, Nelson Rockefeller, was Vice-President. Ford’s stance played a role in his losing to Jimmy Carter, whom I joined in the White House as a Deputy Assistant.

Bruce Kirschenbaum
RESTON, VA.

NBER members weigh in on the recession outlook

NBER is the official body that determines official recessions (usually many months after they occur). At the WSJ Economics blog, they have a roundup of NBER members' views:

Robert Hall, Stanford (Committee Chair): The December employment report was a “crystallizing event” that spurred the committee into early discussions of economic data, and monthly GDP figures are “not enough” to signal much. “At best the economy is flat right now. It stopped growing.”

Martin Feldstein, Harvard (NBER President): He says a recession is more likely than not in 2008, up from 50-50 odds last month.

Jeffrey Frankel, Harvard: “The primary concern has to be the domestic U.S. economy, and not the stock market,” he told the Boston Globe. “You have to guard against giving too much weight to Wall Street.”

Robert Gordon, Northwestern: The odds favor a recession starting late this quarter or next quarter, though “the best forecast now, based on guesstimates of first-quarter data, is that we’re not in a recession right now.”

David Romer, UC Berkeley: He’s not comfortable discussing a recession yet and only has “quibbles” with the Fed’s performance over the last six months. “If there are adverse shocks the Fed should do its best to offset them,” he said. “In general it would be good for the Fed to feel freer to move the funds rate a lot.” (Mr. Romer, along with wife and Berkeley professor Christina Romer, took Ben Bernanke’s spot on the NBER committee in 2002.)

Victor Zarnowitz, The Conference Board: Of the four monthly indicators tracked by the committee, two — industrial production and real personal income less transfers — appear to have peaked, in July and September, respectively. But, those peaks “can easily be reversed or moved through revisions,” he said. The other two — real manufacturing and trade sales and payroll employment — have not peaked yet. Monthly GDP peaked in September but “there are all kinds of problems” with that data. “There is no clear evidence of a peak. That’s my judgment. So no recession (yet), but it bears watching very, very closely.”

DISCLOSURE: I am short US.RECESSION.08

Howard Kurtz has a roundup of Bill, Hillary, Barack, Mike, and Fred

Bruce Bartlett believes that fiscal stimulus is too little too late

stating (via Mark Perry):
The history of anti-recession efforts is that they are almost always initiated too late to do any good. This chart, based on recession timelines from the National Bureau of Economic Research, shows the enactment of stimulus plans is a fairly accurate indicator that we have hit the bottom of the business cycle, meaning the economy will improve even if the government does nothing.

Quote of the day

But interestingly Roubini's predictable bearishness was met with no pushback whatsoever: given the panic in global stock markets and the US central bank, he's sounding positively mainstream at this point. Maybe that's the ultimate buy signal: when everybody agrees with Roubini, you know it can't get any worse.--Felix Salmon, at Davos

Equity markets to open 3% lower today

The good news is that stocks are cheap now. The bad news is they could get a lot cheaper.

The herd tends to overshoot to the upside as well as downside. But this is a cyclical business, not a secular trend.

UPDATE: While I think we are in the 8th inning of the stock market drop, this does not hold true for credit markets. Though $100 billion has been written down off the balance sheets of banks, I think there is at least another $100 billion to go. The financial sector will continue to be a drag on the bigger equity indices.

Tuesday, January 22, 2008

The biggest bull around

could be Brian Wesbury:
To determine fair value for stocks we use a
capitalized profits approach, taking government figures
on profits based on corporate tax filings and then
discounting those profits with a 6% 10-year Treasury
yield. We use a 6% 10-year yield because we believe
bond yields are being held artificially low today by the
Fed. By using a higher bond yield than necessary as a
discount rate, we are taking a conservative stance.

This model suggests that the market is undervalued
by 25% today. With the economy picking up steam in
2008, our forecast is that the Dow moves up as well and
our year-end 2008 forecast is 15,000, with the S&P 500
at 1625.

Once recession fears prove unfounded, US equities
will soar. Those who maintain their appetite for risk
will be richly rewarded sooner than they think.
He's right more often than not; I hope he's right right now. But I'm keeping plenty of powder dry; I suggest you do the same.

Is partisanship trending lower?

Ken Waight suggests that it is so. But he reports that conflict within parties is on the rise.

NOAA does an about-face: global warming now results in fewer hurricanes

via Don Surber.

Al Gore needs to Inconveniently Reshoot parts of his movie.

My simple understanding is that while air temps are warmer, ocean temps are cooler, which is why hurricanes are diminished. My simpleton views also help me understand the difference between the Fed Chairman and Treasury Secretary. How's that for proven science?

Pay-go, we hardly knew ye

An influential and visible leader in the Democratic party wants to spend with extra impunity on the deficit, according to Greg Mankiw.

The strangest mini-bio I read today

courtesy of Alex Tabarrok:

Justin Yifu Lin, apparently soon to be named the World Bank's chief economist, has one of the strangest CVs you could imagine. Lin was born in Taiwan but in 1979 while serving in the Taiwanese army he defected to China by swimming from the island of Kinmen in Taiwan to Xiamen in China. Embarrassed by the defection of a rising star, the Taiwanese army listed him as missing. Lin left behind a wife and children who (it seems) didn't know what had happened to him.

Lin rose quickly in China receiving a Master's degree in Marxist political economy from Peking University in 1982 and in 1986 a PhD in economics from the University of Chicago (!). According to the Taipei Times, Lin's wife learned that Lin was alive while he was in the United States and they were reunited in the U.S. where she also earned a graduate degree before both returned to China. Lin has since become a well-published economist.

Labels:

2-2-3: Zogby poll predicts Nevada outcome better than Intrade contracts

Standings


Wins Losses Ties Pct Contender





2 2 3 0.500 Intrade
2 2 3 0.500 Zogby


Score Date
State Party Intrade Zogby Winner








2-2-3 19-Jan
SC Rep McCain McCain McCain
2-2-2 19-Jan
NV Dem Obama Clinton Clinton
2-1-2 15-Jan
MI Rep McCain 2-way tie Romney
2-0-2 8-Jan
NH Dem Obama Obama Clinton
2-0-1 8-Jan
NH Rep McCain McCain McCain
2-0-0 3-Jan
IA Dem Obama 3-way tie Obama
1-0-0 3-Jan
IA Rep Huckabee 2-way tie Huckabee

The election eve odds are here. I've revised the tiebreakers, though, having done them after a long day out of town while experiencing a caffeine crash.

The method for measuring predictiveness:
1. Look at the highest value Intrade contract and the highest Zogby poll (beyond error rate) to determine each source's predicted winner of a state contest

2. If neither Intrade nor Zogby predicts the winner, the candidate with the higher value between Intrade and Zogby (beyond the Zogby error rate) will win that contest.

Greg Ip reviews recession odds

here:
Recently, credit spreads have widened sharply, but the yield curve has steepened. “The offsetting effects capture a lot of what is happening in the outlook. The economy is worse off, as reflected in wider spreads, but the Fed is riding to the rescue, as reflected in the steeper curve.” Based on recent quotes, “the odds of a recession [in the next 12 months] are less than 10% (see chart below), down from over 40% in early 2007,” Mr. Sack says. He adds: “We run bunch of these types of models, and they all give different results, so I’m not sure any single model should be taken too seriously. I think we would subjectively put the probability of recession above the 10% from this model, but below the 30% to 50% figures that are commonly cited.” One of his favorites “includes the yield slope, risky asset prices, and increases in the unemployment rate. It says the odds are around 40%.”



DISCLOSURE: I am short US.RECESSION.08

Been busy recently

first at this conference, then visiting my folks over the long weekend, and today there's this:

Monday, January 21, 2008

The most damning thing on the academy I've read in long time

from tmatt at GetReligion:
I am reminded of something a scholar told me more than a year ago in Oxford. Try, he said, to find a course at a major, secular British university focusing on textual criticism of the Koran. Then compare this number with the same university’s course offerings applying these methods to the Bible. Then do the math.
Just an Oliver Stonian theory off the top of my head, but could it be that the academy views Muslims as victims and special interest groups with benefits? After all, I'm fresh from posting the item immediately below this one.

Gary Becker and Richard Posner on stalled economic convergence between blacks and whites in America

Each lists many provocative and strategic observations. Here are just a few excerpts, first from Posner:
Black life expectancy narrowed until about twenty years ago, and then remained constant at about 6 years below that of whites. This means that life expectancy of blacks is comparable to mortality rates in the much poorer countries of Paraguay and Mexico. A large fraction of the racial difference in average length of life is due to differences in the incidence of cardiovascular diseases, life styles, and violent deaths. The economic literature on the statistical value of life shows that a typical white values a life year at over $120,000. A comparable analysis for typical American blacks would suggest that they value an additional life year at less than the figure for whites because black earnings are lower. If the value by blacks is about $100,000, the discounted value of the six-year lower life expectancy for blacks would be worth about $400,000. Since the discounted value over a lifetime of the racial gap in average annual earnings would be worth no more than $300,000, this calculation suggests that the racial gap in life expectancy is as important as the still considerable earnings shortfall of blacks.

Why did the progress of blacks stop well short of achieving full equality with whites, and is the slowdown during the past 20 years in black progress only temporary, or is it an indication of what the racial situation will be during the next few decades? The sharp slowdown is surprising mainly because institutionalized and personal discrimination against African-Americans has continued to fall into this century. Probably the most important offset to the decline in discrimination is the rapid growth since the 1960's in the fraction of black children raised in households with only one or no parents-these households also grew among whites, but at a much slower pace. Moreover, white single parent households mainly arise from a divorce between parents who had their children while married (or while living together), whereas never-married and quite young mothers raise many black children.

In addition, there is social pressure on young blacks growing up in segregated neighborhoods to engage in crime, including selling drugs, and to not "act white", where acting white sometime is taken to mean studying hard and investing in one's human capital. These pressures act more on black boys rather than girls, which help explain why the achievements of black women are much closer to those of white women than is the gap between black and white men.

On the whole, I am optimistic that some of these changes will be made, and hence that the convergence between blacks and whites will resume after the hiatus during the past 20 years, although it will probably be many decades before blacks achieve anything close to full parity with whites.
Becker adds:
Quite apart from the black "stars" whom Becker mentions, there is a large and thriving black middle- and upper-middle class. The income gap, and the related gaps in longevity, law-abidingness, education, and family stability, are due to the disproportionate incidence of social disorder among blacks, creating a large black "underclass" that drags black average-income statistics down.
It is also possible that the sexual revolution of the 1960s promoted the break-up of the black family--of the white too, but the whites were in a better position to adapt. To the extent that the "Great Society" programs of the 1960s and the social disorder of the same period are correlated phenomena, together constituting a lurch to the Left, the net effect on black progress may have been negative.

Probably the focus of reform should not be on the black-white income gap as such but on the social pathologies that are responsible (at least in part) for it. The best approach might simply be to remove obstacles to labor mobility and to competition more generally; Becker mentions school vouchers and charter schools. In addition, reducing or eliminating the minimum wage would expand employment opportunities for blacks. Measures can also be taken to reduce the out-of-wedlock birth rate of blacks; in this regard the Administration's effort to stress abstinence, rather than contraception, as a means of limiting teenage pregnancy is misguided.

But there seems to be little political pressure for such reforms. The costs of the social disorders that afflict poor blacks are incurred mainly by poor blacks themselves, and poor blacks do not vote very much. Moreover, blacks support the Democratic Party so overwhelmingly that Democrat politicians have little incentive to expend their necessarily limited political capital on policies that might benefit blacks at the expense of groups that are in play between the two parties, such as public school teachers.
While the policies of black victimization have shifted from the involuntary
(slave trade and labor coercion) to the voluntary (coercive entitlements such as affirmative action), in the end, these policies continue to manufacture victims.

I'm still waiting for entitlement proponents (Al, Jesse, Louis, ... Bill, even?) to call for height and ethnic diversity in the NBA. Let's see how bringing in Asians under six feet into the starting lineups improves the product, brand and monetization of basketball entertainment.

Sunday, January 20, 2008

If you were Oprah, would you want to represent the women, the blacks, or your profitable brand

The saddest funniest thing I read today

Dear Third World Farmer,

Thank you for trying to offer us high quality, low cost agricultural products. However I am sorry but we would prefer it if you remain dependent on tax funded handouts from First World governments and their anointed NGOs. And speaking of NGOs, if you People of Colour start getting involved in horrid global trade, what will happen to the people who work for NGOs? We need NGOs so that our children can go work for them in that pesky gap year, helping you poor ignorant dark people with your Third Worldie Problems, and thereby allowing our kiddies to develop self-esteem and feel good about themselves.

Also we prefer to see you living in photogenic eco-friendly low carbon footprint mud huts, so please stop trying to pull yourself out of poverty via icky capitalist global trade in the one area you should have a comparative advantage. I say 'should' because actually we prefer to buy our food from tax subsidised local farmers, for the good of the planet, you understand.--Perry de Havilland (via Glenn Reynolds).

Austan Goolsbee on the limits of supply side tax cuts

here (via Greg Mankiw).

I agree that tax cuts do not directly pay for themselves. But I also hypothesize that tax cuts constrain spending, given the balanced budget high ground each party might try to take from the other.

Constrained government spending is part of the formula towards growth, away from poverty.

UPDATE: Arnold Kling and Tyler Cowen agree!

Banned? Those must be the good ones

Jack Balkin talks about the legal blogs banned in China (via Glenn Reynolds).

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Friday, January 18, 2008

Markets In Everything: A 4 Year Roundup

Religious affiliations in the U.S.

(via Mark Perry)

The GOP SC and Dem NV Showdown: Intrade v. Zogby

Intrade
Zogby
SC Candidate





56%
29%
McCain


22%
Huckabee
2%
15%
Thompson
1%
13%
Romney


4%
Paul


2%
Giuliani


0%
Hunter


9%
Undecided
41%
4%

FIELD









NV Candidate
54%
37%
Obama
43%
42%
Clinton
4%
12%
Edwards
0%


Gore
0%


Dodd
0%


Richardson
0%


Undecided
0%
9%
FIELD

If Thompson or Romney wins, that contest will be called for Zogby. If any other GOP candidate wins, the contest will end in a draw.

If Obama wins NV, the Democrat contest will be called for Intrade. If Clinton or Edwards wins, that contest will be called for Zogby. If another candidate wins, the contest will end in a draw.

Zogby does not have recent information posted about the GOP in NV nor the Dems in SC, so a meaningful contest with Intrade cannot be had. While it's not a forfeiture by Zogby, at least it's a tiebreaker for Intrade.

UPDATE: Revised, as per this posting.

David Rubenstein says private equity is now in the Purgatory Age

Rubenstein, of Carlyle Group and Magna Carta fame, just spoke at Wharton's Private Equity conference today in Philadelphia. He likened the Eighties buyout era, in all its RJR glory, to the Bronze Age. The Nineties were the Silver Age of expansion, ending due to the tech bubble bursting. We just finished up the Golden Age.

Now we are in the Age of Purgatory. It started with a bang, too.

Hopefully we will speed through it.

Rubenstein struck me as incredibly grounded and poised. As he dealt with the protesters and shared some of his humble beginnings, I sensed a great deal of authenticity. When, as a former aide, he admitted that Jimmy Carter wasn't qualified for office, I knew this was a man who could confess, repent, and win.

UPDATE: Guy Hands of Terra Firma says that his summer prediction of $3 trillion of liquidity drain and $300 billion of bank losses was too optomistic. This probably made him a little grouchy.

Thursday, January 17, 2008

Tony Woodlief has a roundup of the presidential candidates

it's remarkably close to reality (via Megan McArdle). Here's the bit on predicting policy:
As for policy positions, as best I can tell, the Democrats want to give most of the southwest U.S. to Mexico, and invite Muslim terrorists to publicly behead everyone making more than a million dollars a year, except for Steven Spielberg and George Soros. Republicans, meanwhile, want to kick anyone with a Mexican-sounding name out of the U.S., and conquer the entire Middle East so that Halliburton will have work after it kills all the porpoises while drilling for oil off the U.S. coast, which will soon be just east of Kansas City, as a result of the Bush-Reagan-Hitler global warming conspiracy.
Megan also points to the decline of democracy in Nevada.

Justin Wolfers on entertainment forms that can increase or decrease violence

here.

The benefits of Tax Competition



(via Greg Mankiw).

Among the other pearls in the video, it's pretty sick to look back and see that the top income tax rate was once 83% in Britain, and 70% in America. Thank God for Thatcher and Reagan.

It's maybe the 8 best minutes spent of your current hour, or day. If you have some more time, you might want to read Roger Lowenstein's biography of Big Ben Bernanke.

UPDATE: Even though his body's in the grave, you can't keep the Gipper down. Chuck Norris is just a poseur.

UPDATE: Shannon Love called this back in August.

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The Greenhouse is an inaccurate metaphor for the environment

according to Ross McKitrick (via Arnold Kling):
In a greenhouse, movement of air is diminished, so the radiative portion of the energy drain must intensify. Physics can predict with certainty that in order to increase outbound radiation from a greenhouse, temperature inside the greenhouse must increase. A greenhouse must warm up.

But the story in the atmosphere is different. We are adding small amounts of infrared-absorbing gases (like carbon dioxide) to the atmosphere. This does not “trap heat” as the saying goes, instead it diminishes the efficiency of the radiation drain. So the fluid dynamics must adjust to maintain energy flow balance. In order to predict what will happen at the Earth’s surface, it is necessary to solve the equations governing fluid dynamics.

The Global Warming Exchange is ready to accept your wisdom in your trades. For those of you who like oversimplification bias and less freedom, I understand if you want to stick with the Greenhouse Effect.

Arnold Kling advocates more freedom in education

He writes, in response to Sol Stern:
As a voucher proponent, I could argue that on the demand side, the market for teachers is dominated by public schools. You don't go to ed school to teach in private schools--you go there to get certified to teach in public schools. A voucher system would raise the demand for teachers in private schools, and this might provide an impetus for changes in ed schools.

But I am a pessimist that there is any panacea for education (Stern comes close to saying that top-down curriculum reform is a panacea). I think that it is very difficult to overcome individual learning disabilities, poor executive function (I think that is the term du jour for kids who can't handle deadlines and homework), and dysfunctional values in families and peer groups.

I favor vouchers because they transfer power from bureaucrats and unions to parents. Maybe that transfer of power will improve education a lot, maybe only a little. But I view public schools as one of the major institutional assaults on liberty.

I am aware of the risk that vouchers could provide politicians with an excuse to regulate private schools more closely. My goal in supporting vouchers is to weaken politicians, not strengthen them. I believe that if citizens want to keep politicians from over-regulating schools under a voucher system, we can do so. In the end, there is no way to preserve liberty unless citizens are vigilant in protecting it.

I'd like more freedom, too.

UPDATE: More Sol Stern criticism rounded up here.

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Quote of the day

Markets are short on poetic justice, but long on irony.--Bryan Caplan
This was after reflecting on Alex Tabarrok's Forbes piece, which I posted on yesterday:
[T]here are only about 6 million scientists and engineers in the entire world, nearly a quarter of whom are in the U.S. Poverty means that millions of potentially world-class scientists today spend their lives trying to eke out a subsistence living, rather than leading mankind's charge into the future. But if the world as a whole were as wealthy as the U.S. and were devoting the same share of population to research and development, there would be more than five times as many scientists and engineers worldwide.
In short, many of the American protectionists of today will one day be alive thanks to Chindian technology.

Why spiritual beliefs are relevant, as much as the press would not want you to believe

Excellent post by Mollie at GetReligion:

Stobbe quotes someone who thinks immigration policy might have something to do with it since illegal immigrants have an incentive to give birth to children in America as the children are then entitled to all the benefits of citizenship. He then goes to an academic for his insight into why this baby boomlet is occurring. He says it has to do with culture more than race and that factors include “declines in contraceptive use here; limited access to abortion in some states; and a 24/7 economy that provides opportunities for mothers to return to work.” There are other reasons, such as cultural acceptance of out-of-wedlock births, he says. The story also mentions that are regional variations in the United States birth rate:

New England’s fertility rates are more like Northern Europe’s. American women in the Midwest, South and certain mountain states tend to have more children.

Yep, I think we fully understand the data. We know exactly why Hispanics have more children, we know everything there is to know about why New England’s fertility rates are as low as irreligious Europe. And we know why women in certain mountain states have more kids. Actually, apparently we need to know more about that last demographic group. In the very last line of Stobbe’s lengthy piece, he finally mentions the ghost that haunts the entire piece. A Belgian academic says religion might play a role in the mountain state fertility rates. “Evangelical Protestantism and Mormons,” he says.

Wow. It almost seems like demographers and reporters have to work double time to divorce religion from birth rates.

More evidence that we should not have a sitting Congress

Democratic Rep. Marcy Kaptur of Ohio launched into a lengthy question to Ben Bernanke during the Fed chairman’s House testimony about community banks, securitization of home loans and investment banks role in the crisis, ending with this point: “Given that you were the former CEO Of Goldman Sachs…”

She was quickly stopped by the laughter in the room.

“Did I get the wrong firm? Where were you?” she asked, before being corrected that she was thinking of Treasury Secretary Henry Paulson.

Said Mr. Bernanke: “I was CEO of the Princeton Economics Department.”
She also refers to Treasury Sec'y Paulson as "The Other One". I guess I'm overqualified to sit on the House Budget Committee. Taking care of my family, shareholders, neighbors, church members, ... yes, I think I do get a lot more satisfaction than a congressional committee member.

UPDATE: Eddy Elfenbein directs us to CNBC's simultaneous feed of GS stock price movement during this low point of American government

Who said this about Reagan?

"Ronald Reagan changed the trajectory of America in a way that Richard Nixon did not, and a way that Bill Clinton did not. We want clarity, we want optimism, we want a return to that sense of dynamism and entrepreneurship that had been missing."
The person is running for the Democratic nomination for President, and the answer can be found here (via Matt Drudge).

Finding the bottom of the stock market

Back on November 12, I called for a 10-20% drop from our October highs, and some smart people disagreed with me.

We are now 13% below. S&P500 fell below 1350, and Dow below 12300.


I hope that the bottom is not lower than 20%. That would mean we are not even halfway to the bottom yet. I've been starting to buy some distressed companies, but am leaving most of my powder dry until I have some confidence that we have hit bottom.

The graph I provided above is a 3 month view from Yahoo. Here is the 5 year, which is not so reactionary:



UPDATE: Arnold Kling isn't too worried in the long run, either.

Wednesday, January 16, 2008

Bloomberg transfers $2 billion into his checking account

at The Borowitz Report (via WallStreetJackass).



DISCLOSURE: I am long BLOOMBERG.08.INDEPENDENT

Julian Sanchez and David Weigel believe that Lew Rockwell wrote Ron Paul's racist newsletters

at reasononline (via Megan McArdle):

Financial records from 1985 and 2001 show that Rockwell, Paul's congressional chief of staff from 1978 to 1982, was a vice president of Ron Paul & Associates, the corporation that published the Ron Paul Political Report and the Ron Paul Survival Report. The company was dissolved in 2001. During the period when the most incendiary items appeared—roughly 1989 to 1994—Rockwell and the prominent libertarian theorist Murray Rothbard championed an open strategy of exploiting racial and class resentment to build a coalition with populist "paleoconservatives," producing a flurry of articles and manifestos whose racially charged talking points and vocabulary mirrored the controversial Paul newsletters recently unearthed by The New Republic. To this day Rockwell remains a friend and advisor to Paul—accompanying him to major media appearances; promoting his candidacy on the LewRockwell.com blog; publishing his books; and peddling an array of the avuncular Texas congressman's recent writings and audio recordings.

Rockwell has denied responsibility for the newsletters' contents to The New Republic's Jamie Kirchick. Rockwell twice declined to discuss the matter with reason, maintaining this week that he had "nothing to say." He has characterized discussion of the newsletters as "hysterical smears aimed at political enemies" of The New Republic. Paul himself called the controversy "old news" and "ancient history" when we reached him last week, and he has not responded to further request for comment.

But a source close to the Paul presidential campaign told reason that Rockwell authored much of the content of the Political Report and Survival Report. "If Rockwell had any honor he'd come out and I say, ‘I wrote this stuff,'" said the source, who asked not to be named because Paul remains friendly with Rockwell and is reluctant to assign responsibility for the letters. "He should have done it 10 years ago."



DISCLOSURE: I am short 2008.GOP.NOM.PAUL

Existentially speaking, are you a Stomach or a Brain?

Alex Tabarrok says:

People used to think that more population was bad for growth. In this view, people are stomachs--they eat, leaving less for everyone else. But once we realize the importance of ideas in the economy, people become brains--they innovate, creating more for everyone else.

New ideas mean more growth, and even small changes in economic growth rates produce large economic and social benefits. At current income levels, with an inflation-adjusted growth rate of 3% per year, America's real per capita gross domestic product would exceed $1 million per year in just over 100 years, more than 22 times higher than it is today. Growth like that could solve many problems.

Some more Freedom v. Poverty graphs

NY Times prints Steve Landsberg's column on freer trade

Landsberg writes (via Don Boudreaux):

All economists know that when American jobs are outsourced, Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices. In other words, the winners can more than afford to compensate the losers. Does that mean they ought to? Does it create a moral mandate for the taxpayer-subsidized retraining programs proposed by Mr. McCain and Mr. Romney?

Um, no. Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside?

I doubt there’s a human being on earth who hasn’t benefited from the opportunity to trade freely with his neighbors. Imagine what your life would be like if you had to grow your own food, make your own clothes and rely on your grandmother’s home remedies for health care. Access to a trained physician might reduce the demand for grandma’s home remedies, but — especially at her age — she’s still got plenty of reason to be thankful for having a doctor.

In what morally relevant way, then, might displaced workers differ from displaced pharmacists or displaced landlords? You might argue that pharmacists and landlords have always faced cutthroat competition and therefore knew what they were getting into, while decades of tariffs and quotas have led manufacturing workers to expect a modicum of protection. That expectation led them to develop certain skills, and now it’s unfair to pull the rug out from under them.

Once again, that argument does not mesh with our everyday instincts. For many decades, schoolyard bullying has been a profitable occupation. All across America, bullies have built up skills so they can take advantage of that opportunity. If we toughen the rules to make bullying unprofitable, must we compensate the bullies?

Bullying and protectionism have a lot in common. They both use force (either directly or through the power of the law) to enrich someone else at your involuntary expense. If you’re forced to pay $20 an hour to an American for goods you could have bought from a Mexican for $5 an hour, you’re being extorted. When a free trade agreement allows you to buy from the Mexican after all, rejoice in your liberation — even if Mr. McCain, Mr. Romney and the rest of the presidential candidates don’t want you to.

2-1-2: Zogby poll predicts Romney victory better than Intrade contracts did

Score Date
State Party Intrade Zogby Winner








2-1-2 15-Jan
MI Rep McCain 2-way tie Romney
2-0-2 8-Jan
NH Dem Obama Obama Clinton
2-0-1 8-Jan
NH Rep McCain McCain McCain
2-0-0 3-Jan
IA Dem Obama 3-way tie Obama
1-0-0 3-Jan
IA Rep Huckabee 2-way tie Huckabee

Election eve predictions here.

Tuesday, January 15, 2008

Duelity

Is two films that can be shown as one. The first is creationism couched in scientific jargon. The second is evolution described with spiritual language. (Via Jeremy Elder).

The real history on civil rights and the Democratic Party

Obama just stated, as a uniter of his party:
“Our party has been on the front line of every civil rights movement, women’s rights movement, workers’ rights movement and other movements for justice in America.”
but QandO sets him--and anybody else who forgets that the GOP is the party of Lincoln--historically straight.

I vote for candidates from both parties (and contribute a lot more to the Dems because that's all the candidates I know personally in NYC), but let's try not to drink spiked kool aid.

Schumer for free trade!

Schumer sometimes disappoints, but this is good:

"Ethanol has increased the average American's grocery bill $47 since July," said Sen. Chuck Schumer, citing figures from Iowa State University.

Schumer (D-N.Y.) is pushing for an immediate end to the 54-cent-per-gallon tariff on ethanol imports as a way to increase the supply of the federally mandated fuel additive, reduce pressure on the corn market and bring down milk prices.

"Bring the cheaper ethanol in, reduce the price of corn, and then reduce the price of milk," he said.

Best hedge fund year ever award


goes to John Paulson:
By 2005, Mr. Paulson, known as J.P., worried that U.S. economic strength would flag. He began selling short the bonds of companies such as auto suppliers, that is, betting on them to fall in value. Instead, they kept rising, even bonds of companies in bankruptcy proceedings.

"This is crazy," Mr. Paulson recalls telling an analyst at his firm. He urged his traders to find a way to protect his investments and profit if problems developed in the overall economy. The question he posed to them: "Where is the bubble we can short?"

They found it in housing. Upbeat mortgage specialists kept repeating that home prices never fall on a national basis or that the Fed could save the market by slashing interest rates.

One Wall Street specialty during the boom was repackaging mortgage securities into instruments called collateralized debt obligations, or CDOs, then selling slices of these with varying levels of risk.

For buyers of the slices who wanted to insure against the debt going bad, Wall Street offered another instrument, called credit-default swaps.

Naturally, the riskier the debt that such a swap "insured," the more the swap would cost. And this price would go up if default risk appeared to be increasing. This meant an investor of a bearish bent could buy the swaps as a way to bet on bad news happening.

During the boom, however, many were so blind to housing risk that this "default insurance" was priced very cheaply. Analyzing reams of data late at night in his office, Mr. Paulson became convinced investors were far underestimating the risk in the mortgage market. In betting on it to crumble, "I've never been involved in a trade that had such unlimited upside with a very limited downside," he says.

Paulo Pelligrini, a portfolio manager at Paulson & Co., began to implement complex debt trades that would pay off if mortgages lost value. One trade was to short risky CDO slices.

Another was to buy the credit-default swaps that complacent investors seemed to be pricing too low.

"We've got to take as much advantage of this as we can," Mr. Paulson recalls telling a colleague around the middle of 2005, when optimism about the housing market was at its peak.

His bets at first were losers. But lenders were getting less and less rigorous about making sure borrowers could pay their mortgages. Mr. Paulson's research told him home prices were flattening. Suspecting that rating agencies were too generous in assessing complex securities built out of mortgages, he had his team begin tracking tens of thousands of mortgages. They concluded it was getting harder for lenders to collect.

Once-complacent investors now began to worry. The ABX, which had begun with a value of 100 in July 2006, fell into the 60s. The new Paulson funds rose more than 60% in February alone.

But as his gains piled up, Mr. Paulson fretted that his trades might yet go bad. Based on accounts of barroom talk and other chatter by a Bear Stearns trader, he became convinced that Bear Stearns and some other firms planned to try to prop the market for mortgage-backed securities by buying individual mortgages.

As Mr. Paulson's funds racked up huge gains, some of his investors began telling others about the funds' tactics. Mr. Paulson was furious, worried that others would steal his thunder. He began using technology that prevented clients from forwarding his emails.

In the fall, the ABX subprime-mortgage index crashed into the 20s. The funds' bet against it paid off richly.

Credit-default swaps that the funds owned soared, as investors' perception of risk neared panic levels and they clamored for this insurance.

And the debt slices the funds had bet would lose value, indeed fell -- to nearly worthless.

One concern was that even if Mr. Paulson bet right, he would find it hard to cash out his bets because many were in markets with limited trading. This hasn't been a problem, however, thanks to the wrong bet of some big banks and Wall Street firms. To hedge their holdings of mortgage securities, they've scrambled to buy debt protection, which sometimes means buying what Mr. Paulson already held.

The upshot: The older Paulson credit funds rose 590% last year and the newer one 350%.

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Tyler Cowen thinks the GOP presidential contract is a little underpriced

He says:
I am still thinking that most people are underestimating the chances of a Republican President (the ascendancy of John McCain is starting to reverse this tendency), noting that #2 and #4 are working for my view, but #3 is working against it, at least at the moment.

2. Party disunity predicts an electoral loss

3. Signs that the election will center around the economy help the Democrats. Signs that the economy will focus on foreign policy help the Republicans.

4. When a woman or an African-American or a former first Lady is running for President, that is a huge issue in the minds of voters, whether anyone admits it or not



DISCLOSURE: I am long PRESIDENT.REP2008

The biggest front running trader ever?

Drive what I say, not what I drive

is what Huckabee, McCain, Obama, and Edwards share, according to Mark Perry:
Mike Huckabee: "When it comes to his own vehicles, the Baptist minister strays from his scripture of fuel efficiency." Vehicles includes a 2007 Chevy Tahoe (16 mgp, pictured above) and a Chevrolet Silverado (12 mpg) two of the biggest light trucks on the planet.

John McCain: Vehicles include a Lexus (his wife's) and a CTS Cadillac (18 mpg).

Barack Obama: Travels with a Secret Service convoy of Chevy Suburban SUVs (12 mpg). His personal vehicle was a gas-guzzling, 340 horsepower Chrysler 300C (17 mpg) until he was exposed, and he bought a more politically correct Ford Escape SUV hybrid (27 mpg).

John Edwards: Now drives an Escape hybrid (30 mpg) after he was inconveniently caught driving a bigger SUV last summer while preaching that Americans should sacrifice their SUVs.
Why, I was just saying the same thing on Sunday.

The 2008 Recession contract

is unusually active today:



DISCLOSURE: I am short US.RECESSION.08

We've reached the $100 billion mark

in bank writedowns. Capital infusions stand around $50 billion.

We could be in the 8th inning.

What is it with Pastors and Taxes?

Molly Ball scoops (via Mark Stricherz):

Obama had a full Sunday in Southern Nevada, first making a surprise appearance at a downtown black church, where he spoke at the end of the service.

Before he arrived, the pastor of the Pentecostal Temple Church of God in Christ, speaking from the pulpit, advocated for Obama, possibly breaking the law. Pastor Leon Smith told the congregation that "the more he (Obama) speaks, the more he wins my confidence, and ... if the polls were open today, I would cast my vote for this senator."

He urged them to do the same, saying, "If you can't support your own, you're never going to get anywhere. ... I want to see this man in office."

Under federal tax law, nonprofits such as churches are prohibited from endorsing or opposing political candidates. The Internal Revenue Service has ruled that the forbidden partisan activity includes speech from the pulpit that indicates the church favors a particular candidate.

The campaign said the pastor simply had made supportive statements about Obama's record. The church could not be reached late Sunday.

I recently posted about another pastor in conflict with taxes.

Veryan Allen writes about: Investing, Trading or Gambling

here:
What is the difference between investing, trading and gambling? The first two come down to a divide in the holding period continuum; microseconds to months is trading but years is investing. Superficially investing and gambling are quite similar; putting money at risk in the hope of making more money. But most investors would balk at the idea of being called a gambler.

Whenever I hear the argument for long term passive investing I wonder what temporal era is meant - geological or cosmological time? Over periods of relevance to living humans I'd rather invest in alpha than gamble on beta. Suppose in 2020 or 2030 major equity indices are LOWER than today? Lost year, lost decade? Gold may be above $900 today but remains far below its inflation-adjusted high set over 600 years ago. I'll take different strategies applied to assets over asset classes themselves every time.

Most investors cannot wait long enough for the beta bet to pay off and why should they when they can allocate to fund managers with the skill to generate reliable absolute returns from their edge? Investing and trading both have important roles to play in a portfolio but it is no place to gamble. The only trades to make and the only managers to pick are those with positive expectation and the odds in their favor.
Some of my earlier ruminations on the same here.

UPDATE: Felix Salmon has his take here. I agree with Allen that Blackjack and Poker biases against the individual player can be overcome, but agree with Salmon that Roulette and Dice cannot.

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Poverty's negative correlation to Freedom

Mary Anastasia O'Grady reports:
The 2008 Index of Economic Freedom also reports that the freest 20% of the world's economies have twice the per capita income of those in the second quintile and five times that of the least-free 20%. In other words, freedom and prosperity are highly correlated.

The annual survey grades countries on a combination of factors including property rights protection, tax rates, government intervention in the economy, monetary, fiscal and trade policy, and business freedom.
Top 5
Bottom 5



1. Hong Kong
153. Burma
2. Singapore
154. Libya
3. Ireland
155. Zimbabwe
4. Australia
156. Cuba
5. United States
157. North Korea

Unrated: Congo Dem Rep, Iraq, Montenegro, Serbia, Sudan

NOTE: I think there's some long-term risk of Hong Kong reverting towards China (ranked near the top of the lowest quintile, at #126). And Bryan Caplan recently noted a notable exception to the freedom in Singapore:

Singapore has conscription. Two years of mandatory military service. Or as I see it, hell on earth. It's not just state slavery. It's state slavery in an especially unpleasant line of work. Even in peacetime, my best-case scenario for military service is that it's like full-time Physical Education.

I'm happy to waste 11% of GDP on unnecessary health care expenditures, and live with another percentage point or so of unemployment, to keep myself and my sons from involuntary military service. And frankly, the purported "social benefits" of the draft - greater social cohesion, egalitarian mingling, and the fostering of patriotism - horrify me as well. Hey, I never claimed to be normal.

Maybe one day a key member of the exceptionally economically literate elite of Singapore will re-read a standard textbook critique of conscription. Or maybe he'll come across David Henderson's great article on "The Role of Economists in Ending the Draft." And then he'll suddenly say: "What were we thinking? Conscription is really inefficient." It would be nice if he'd add, "Oh, and monstrous too," but I don't ask for miracles. Until that day comes, the policies of the U.S. remain the lesser evil.

UPDATE: Don Boudreaux has more:
But unleash people from the countless foolish and rent-seeking constraints imposed by government and from constraints imposed by their own superstitions and they will create resources. They will flourish and prosper, not only materially but also culturally and intellectually. A free people can and will build a dynamically prosperous society in even relatively barren and inhospitable places such as New England, Arizona, and Hong Kong. An unfree people will languish in poverty even in lush paradises such as much of Central and South America and in lands teeming with 'natural' resources such as Congo and Russia.

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Monday, January 14, 2008

Why can't Huckabee interpret the Bible as well as Thompson can?

John Bentley reports (via Glenn Reynolds):
Mixing theology and social issues on the campaign trail is rare for Fred Thompson, but he discussed it today answering a question from a member of the audience.

A woman asked him if he would “as a Christian, as a conservative” continue President Bush’s programs to combat global AIDS.

“Christ didn’t tell us to go to the government and pass a bill to get some of these social problems dealt with. He told us to do it,” Thompson said.

“The government has its role, but we need to keep firmly in mind the role of the government, and the role of us as individuals and as Christians on the other.”
Huckabee, on the other hand, is a classic prooftexter, trying to fit the foot to the shoe.

Patriots press conference jocularity


on Saturday night:

Randy Moss: Do you think you're a handsome quarterback?

Tom Brady: That was the last question.

Those happy days of yore

The Michigan GOP Showdown: Intrade v. Zogby

Intrade
Zobgy
Candidate





54%
27%
McCain
44%
24%
Romney


15%
Huckabee


8%
Paul
0%
6%
Giuliani
0%
5%
Thompson


<1%
Hunter


7%
Someone else


9%
Undecided
4%


FIELD

The Zogby data is here. The Intrade snapshot was taken at 3pm EST today.

According to Zogby, the epsilon is +/- 3.4%, so Zogby is showing a statistical dead heat. If McCain wins, then the contest will be called for Intrade. If either Romney, Huckabee, Paul, Giuliani or Thompson win, the contest will be called for Zogby. If any other candidate wins, a draw will be called.

Derek Lowe looks at the emotional limits of market driven pharma pricing

Very thoughtful essay; please read the whole thing:
Imagine that if you wanted to buy a car, you had to first visit a car consultant. This would be an expert who would place your order with a car dealer, after first looking over your transportation needs, financial status, and other factors. No one would be able to order a car on their own. Advertisements for cars would look similar to the ones we have today, except there would be a phrase at the end to “Ask your car consultant”. Much more advertising and promotion, though, would be directed at the consultants themselves, as you’d figure.

Let’s move the analogy over to something a bit more realistic: mortgages. Given the current subprime meltdown, it wouldn’t surprise me much if someone, somewhere, has called for the creation of a class of mortgage advisors. Anyone looking to borrow money for a real-estate transaction would be required to go through at least a cursory visit with one. And the bulk of the promotion money would, again, surely find it way to trying to influence the mortgage advisors themselves. Lenders would come in with figures showing how few people had defaulted with them, what percentage of the loans in a given market they underwrote, and so on. As gatekeepers in an important industry, they’d be much in demand.

Of course, in the world we live in, we trust adult consumers to be able to make decisions about which car to buy. And (for now, anyway) we trust adult consumers to be able to decide for themselves if they’re ready to buy a house, which houses they might be interested in purchasing, and how they might wish to do so. This is a harder decision, since it involves a much greater commitment of time and money than purchasing a car, and there are many more options available.

So we finally come to prescription drugs. Medical care is even more complicated than real estate – you can obtain licenses to sell properties or mortgages far more easily and with far less schooling than you need to obtain one to practice medicine, and that’s a good thing. You also cannot obtain new medicines, or any drugs for major diseases, without seeing a doctor first, both to make sure of the disease and to advise on its treatment. Consumers – and by this time, we use the word “patients” – are free to follow or not follow this advice, or to shop around until they find a doctor whose opinions they like better (if any), but they are not free to purchase and dose themselves (or others) with prescription drugs.

The difference is, as anyone will tell you, that health is an intensely personal category unto itself.

The unusual quality of a medical transaction is understandable for another reason as well, since traditionally the course of a physical ailment has been uncertain, and the ability of medicine to do anything about it has been likewise in doubt. For most of human history, seeing a doctor has been very much like seeing a priest. It has not been looked at as a business interaction, and in most cases it had no hope of ever being one in the usual sense.

People will spend terrifying amounts of their own money in the hopes of helping themselves or close family members, even in cases where the probability of success is tiny. Huge sums are spent in this country on people who are clearly near death. A person who would never dream of taking their savings to the racetrack and betting it all on a 50-to-1 longshot horse will take the same amount and put it down, with hardly a second thought, on a 500-to-1 chance of a successful medical treatment. This changed attitude extends further: medical personnel are often paid well for their efforts, but they can also give a great deal of themselves in the process, since lives are at stake. There’s an urgency, a justifiable sense of importance, which is hard for people in other professions to feel as often or as intensely.

Physicians deserve to be compensated for their work, proportional to its value and difficulty, and to their skills in performing it. And drug companies should be compensated for their efforts in discovering new drugs, also according to their value. Not even the harshest critic of the industry would balk at that last statement, but that because we haven’t come down to numbers yet. If you believe that virtually all the work of drug discovery is done through federal funding, with the drug industry stepping in at the end to decide on the price and the packaging, then you will feel that this compensation should be rather minimal. (If you think that, you’re mistaken, but that’s another topic).

How, then, to decide how much a given drug therapy is worth? Any economist will tell you that the price of some good is, finally, what people are willing to pay for it. This principle works silently, for the most part, until someone offers to resell tickets for the big game for five times what they paid for them, or when the price of lumber and gasoline goes up after a hurricane comes through.

My industry realizes this (any fool realizes this). But it’s never known quite what to do about it. Pointing out that drug discovery is expensive has been a traditional argument, and it’s one that I’ve made myself. But that doesn’t address the underlying reasons for the uneasiness. Paying money for health care does not descend to the same mental category as paying money for car repairs just because someone has tried to make a case for the accounting involved. People don’t believe the numbers, anyway, but even the most believable numbers in the world would not do the trick.

This is where I should come right out and say that I don’t have a solution to this problem. But I think that it’s worthwhile to consider why it exists, and where (to my mind) it’s coming from.

What ends recessions?

Asks and answers Tom Firey:

The definitive historical review of U.S. government responses to recession is Christina and David Romer’s 1994 NBER Macroeconomics Annual paper “What Ends Recessions?” [$]. The Romers examine each U.S. recession from the end of World War II to the article’s publication date (that is, the recessions of 1954, 1958, 1960, 1970, 1975, 1980, 1982, and 1991) and determine what government actions were taken in response and how successful those actions were.

Government response to recessions comes in three forms: monetary policy (the Federal Reserve’s Open Market Committee lowers interest rates to spur investment and borrowing), automatic fiscal policy (the automatic increase in government spending during recessions that results from increased unemployment insurance claims, welfare disbursements, etc.), and discretionary fiscal policy (the adoption of stimulus packages that contain increased government spending and/or tax cuts).

The track records for both FOMC action and the automatic stabilizers are strong, the Romers show. Both kick in quickly when recessions begin, and the economy turns around fairly soon afterward.

Stimulus packages have a much shoddier record, however: they take months to move through Congress, and additional months to implement — long after the recession has come and gone. Moreover, many of the specific actions initiated by stimulus packages are hardly stimulatory — extending unemployment benefits or launching major government construction programs requires several months to several years (and sometimes even decades) before the federal monies hit the economy.




DISCLOUSRE: I am short US.RECESSION.08

Sunday, January 13, 2008

The funniest thing I read on Friday

just got truer, according to Jon Henke:
  • "[R]ight now it looks as if the economy is stalling..." — Paul Krugman, September 2002

  • "We have a sluggish economy, which is, for all practical purposes, in recession..." — Paul Krugman, May 2003

  • "An oil-driven recession does not look at all far-fetched." — Paul Krugman, May 2004

  • "[A] mild form of stagflation - rising inflation in an economy still well short of full employment - has already arrived." — Paul Krugman, April 2005

  • "If housing prices actually started falling, we'd be looking at [an economy pushed] right back into recession. That's why it's so ominous to see signs that America's housing market ... is approaching the final, feverish stages of a speculative bubble." — Paul Krugman, May 2005

  • "In fact, a growing number of economists are using the "R" word [i.e., "recession"] for 2006." - Paul Krugman, August 2005

  • "But based on what we know now, there’s an economic slowdown coming." - Paul Krugman, August 2006

  • "this kind of confusion about what’s going on is what typically happens when the economy is at a turning point, when an economic expansion is about to turn into a recession" - Paul Krugman, December 2006

  • "Right now, statistical models ... give roughly even odds that we’re about to experience a formal recession. ... [T]he odds are very good — maybe 2 to 1 — that 2007 will be a very tough year." - Paul Krugman, December 2006

Eco-adopters have larger carbon footprints

according to The Telegraph (via Don Surber):

A survey of travel habits has revealed that the most environmentally conscious people are also the biggest polluters.

"Green" consumers have some of the biggest carbon footprints because they are still hooked on flying abroad or driving their cars while their adherence to the green cause is mostly limited to small gestures.

I'm not surprised, not one bit. No kayaking to Oslo or Bali, just a lot of celebs jetting around, huh? Or idling around in all those production trailers.

Bill Simmons and the Power of Four

He believes:
When you add a fifth person to a four-man studio show, and you're not getting rid of any of the other four people, by my calculations, that's too many people. Think of it as the power of four. Unless you're putting together a poker night or a group to play pickup hoops, in nearly every other conceivable scenario, you're better off with four people than five or more. Dinner always works better. Vegas works better. Cabs work better. Sporting events work better. Road trips work better. Local newscasts and morning shows work better. Rock bands work better. The most successful sitcom ever ("Seinfeld") centered around four friends, and the most popular female comedy series ("Sex and the City") did the same. If you keep the number at four, you'll always have enough people to make it interesting and everybody has a chance to shine.
Let's not forget those apocalyptic horses. I also agree with Bill that James "JB" Brown is the best NFL show host today.

Friday, January 11, 2008

Manufacturing employment under Governor Huckabee

This'll go over well on a national scale

from Club for Growth.

Singapore: liberty, Justice and JOBS for all

Bryan Caplan with a compelling Singaporean solution to rising unemployment:
With flexible wages, of course, it doesn't matter who legally pays the a tax. But the whole problem with recessions is that wages are somewhat sticky - you can have surplus labor for years before wages fall enough to restore full employment. By cutting employers' share of the tax, the Singaporeans greatly speed up the wage adjustment process.
A little more liberty would be nice?

UPDATE: More mind-blowing Singaporean solutions--this time on healthcare:
Singapore has achieved American health outcomes for about a quarter of the share of GDP the U.S. spends. Furthermore, if Canada shows that socialized medicine can save a few percent of GDP without hurting health, Singapore shows that the free lunch offered by greater government control is meager compared to the free lunch offered by old-fashioned individual incentives.

Labels: , ,

Affordable healthcare banned in Boston by Mayor Menino

reports Stephen Smith (via Glenn Reynolds):

Menino blasted state regulators for paving the way Wednesday for the in-store clinics, which are designed to provide treatment for sore throats, poison ivy, and other minor illnesses.

The decision by the state Public Health Council, "jeopardizes patient safety," Menino said in a written statement. "Limited service medical clinics run by merchants in for-profit corporations will seriously compromise quality of care and hygiene. Allowing retailers to make money off of sick people is wrong."

Yes, so the politician's answer boils down to: let's not let people decide how to spend their money by taking away their ability to choose between different service providers. And then I get the special interest donations while I'm campaigning, and a cushy job after I'm voted out.

Upticks in racism?

When Americans find out that Obama backs right wing corporate racist anti worker [manure], they will not vote for him--Rosanne Barr

You can’t shuck and jive at a press conference. All those moves you can make with the press don’t work when you’re in someone’s living room--Andrew Cuomo (via Don Surber)

The American Jewish Congress submitted this understated advertisement about the status of women in Israel to Ms. Magazine. Underneath the attractive photographs of Israel's foreign minister (Tzipi Livni), Supreme Court president (Dorit Beinish), and speaker of the Knesset (Dalia Itzik), the ad reads: "This is Israel." A Ms. Magazine representative, Susie Gilligan, whom the Ms. Magazine masthead lists under the publisher's office, told Ms. Kurlander that the magazine
"would love to have an ad from you on women's empowerment, or reproductive freedom, but not on this."
Ms. Gilligan failed to elaborate what "this" is. (via Glenn Reynolds)

Earlier racism print here.

The best song I heard today





DISCLOSURE: I am long NFL.PATRIOTS

Barry Ritholtz identifies imperfections in Intrade and its traders

Over at Midas Oracle, he writes:
Hence, we see more potential sources of market failure as these conditions are violated:
1) An insufficient amount of incentives;
2) A lack of diversity of ideas;
Chris Masse responds:
The rebuttal is easy:
  1. Economists Justin Wolfers and Eric Ziztwewitz wrote that, even small, compared to the financial markets, many real-money prediction markets are liquid enough to generate statistically accurate probabilistic predictions.
  2. Academic papers have shown that IEM’s predictions have been slightly better than the polls, even though their traders are unrepresentative of the general US population.
And my 2 cents in the comments:
.1. A dollar is a dollar, and the bragging rights that go with being right and winning are incentives beyond the dollar.

.2. Having a bunch of alleged right wing fanatics trading Obama v. Clinton seems irrelevant to their skewing of interparty contests.

I'd say Barry is 0-2 here. At least Intrade traders maintain a 2-0-2 advantage over Zogby in the 2008 primaries.

The funniest thing I read today

Paul Krugman is voting for doom. It's worth keeping in mind, however, that Paul Krugman has predicted eight of the last none recessions under the Bush administration.--Megan McArdle



DISCLOSURE: I am short US.RECESSION.08

Thursday, January 10, 2008

Virginia Postrel shows Chris Masse and me how to disagree

with others without being disagreeable. She takes the following to task, yet remains ever sweet and seemly: Ron Paul, Reason Magazine, Andrew Sullivan AND Woodrow Wilson:
Rightly or wrongly, I didn't consider Paul "one of the biggest mainstream representatives of libertarian thought." I'm not sure whether I would have written about him if I had. Life is short, I don't make my living as a professional libertarian any more, and I don't feel responsible for commenting on every libertarian-related development that comes along. These days, I am more interested in understanding culture and economics than focusing on policy, much less policing the libertarian movement. Plus, as the Paulites will be quick to note, I disagree with Paul on his sexiest issue, the Iraq war (and on his second sexiest issue, opposition to immigration).

I do fault my friends at Reason, who are much cooler than I'll ever be and who, scornful of the earnestness that takes politics seriously, apparently didn't do their homework before embracing Paul as the latest indicator of libertarian cachet. For starters, they might have asked my old boss Bob Poole about Ron Paul; I remember a board member complaining about Paul's newsletters back in the early '90s. Besides, people as cosmopolitan as Nick Gillespie and Matt Welch should be able to detect something awry in Paul's populist appeals. (Note that by "cosmopolitan" I do not mean "Jewish." I mean cosmopolitan.) I suspect they did but decided it was more useful to spin things their way than to take Paul's record and ideas seriously. As for Andrew Sullivan, his political infatuations are not his strong point as a commentator.

Tim Cavanaugh has a smart take on the Paul controversy, made all the better by his swipe at Jim Crow-lover Woodrow Wilson. [Via Hit & Run.]



DISCLOSURE: I am short 2008.GOP.NOM.PAUL

Is Chris Masse much less predictive than prediction markets and the Bible?

I say Yes:
the wonderful-but-overexuberant Chris Masse wrote:

TRANSLATION: Hillary Clinton is finished. Done with.

This is the same Chris who, based on prediction markets, wrote in November that:

The next US president is Hillary Clinton. Period.

and Yes:

As far as the cultural costs to reading the Bible, how should we explain the positive correlation of Bible reading to wealth and rights? For instance, the Magna Carta, the Reformation, the Scottish Enlightenment, the American Revolution.

I’m not sure you can find any verses actually advocating any of the issues you mention, except for the use of alcohol. This appears to be irresponsible, illogical, unscientific, and undisciplined exegesis to me.

The readers and interpreters of the Bible get it wrong a lot of the time. But then again, not even prediction markets are perfect.

Wednesday, January 09, 2008

In a footnoted aside, Megan comes up with a great anecdote showing how a successful Robin Hood

can kill a local economy:
... a giant problem in America, particularly during depressions, when neighbors often showed up at foreclosure auctions, intimidated outside buyers to prevent them from bidding, and then bid trivial sums on all the property in order to return it to its former owners. This seems cute and folksy and community-oriented until you realize that this generally made the bank go out of business, or at least stop lending to that community, whereupon everyone complained that they couldn't get credit.

You had me at "niggardly"*

Goddard Institute for Space Studies have published their average 2007 mean surface temperature

as +0.56 Celsius degrees (over the mean 1951-80 mean of 14 Celsius degrees). The contracts closed on Dec 31 as follows:

STOCK PRICE
From 0.51 to 0.60C $48.72
From 0.61 to 0.70C $43.03
0.50 or less $4.31
0.71 or more $3.93

Since 2001, the average temperature has registered as 0.544 Celsius degrees over mean, with a standard deviation of 0.048.

Thanks to all the traders who participated. The 2008 contracts are now available for your trading and interest.

Partisans and journalists not very predictive

from today's WSJ:

Three weeks before the 2006 elections, the British medical journal Lancet published a bombshell report estimating that casualties in Iraq had exceeded 650,000 since the U.S.-led invasion in March 2003. We know that number was wildly exaggerated. The news is that now we know why.

It turns out the Lancet study was funded by anti-Bush partisans and conducted by antiwar activists posing as objective researchers. It also turns out the timing was no accident. You can find the fascinating details in the current issue of National Journal magazine, thanks to reporters Neil Munro and Carl Cannon.

The Lancet death toll was more than 10 times what had been estimated by the U.S. and Iraqi governments, and even by human rights groups. Asked about the study on the day it was released, President Bush said, "I don't consider it a credible report." Neither did the Pentagon and top British authorities.

The high body count was an extrapolation based on a sampling of households and locations that was far too small to render reliable results. What the National Journal adds is that the Lancet study was funded by billionaire George Soros's Open Society Institute. Mr. Soros is a famous critic of the Iraq campaign and well-known partisan, having spent tens of millions trying to defeat Mr. Bush in 2004.

Two co-authors, Gilbert Burnham and Les Roberts of Johns Hopkins University, told the reporters that they opposed the war from the outset and sent their report to the Lancet on the condition that it be published before the election.

Then there is Lancet Editor Richard Horton, "who agreed to rush the study into print, with an expedited peer review process and without seeing the surveyors' original data," report Mr. Munro and Mr. Cannon. He has also made no secret of his politics. " See YouTube for more.

We also learn that the key person involved in collecting the Lancet data was Iraqi researcher Riyadh Lafta, who has failed to follow the customary scientific practice of making his data available for inspection by other researchers.

In other words, the Lancet study could hardly be more unreliable. Yet it was trumpeted by the political left because it fit a narrative that they wanted to believe. And it wasn't challenged by much of the press because it told them what they wanted to hear. The truth was irrelevant.

Hillary takes NH!

Intraders and Zogby respondents didn't come up with the right mix. Paul Tetlock did say: the more liquid the contract, the more the price overshoots.

Score Date
State Party Intrade Zogby Winner








2-0-2 8-Jan
NH Dem Obama Obama Clinton
2-0-1 8-Jan
NH Rep McCain McCain McCain
2-0-0 3-Jan
IA Dem Obama 3-way tie Obama
1-0-0 3-Jan
IA Rep Huckabee 2-way tie Huckabee

Tuesday, January 08, 2008

Arnold Kling has a round up of scary things

that Ron Paul has said, or at least branded:
“[O]ur country is being destroyed by a group of actual and potential terrorists—and they can be identified by the color of their skin.”

“I think we can safely assume that 95% of the black males in that city [Washington, D.C.] are semi-criminal or entirely criminal.”

...“If this walking bomb had gone off, it would have demolished the House Chamber and most of the congressmen in it. Yet this attempted terrorist attack was buried by the media. Why? Because the perpetrator was an undoubtedly mad Israeli, furious over alleged slights to his country… [T]he Israeli lobby deep-sixed the story, and no one outside of Congress ever hea[r]d about it.”
No wonder he refuses to discredit the extreme groups supporting him.

UPDATE: Ann Althouse has been feeling queasy about Paul for awhile, and now she's especially nauseous.

DISCLOSURE: I am short 2008.GOP.NOM.PAUL

S&P 500 closes under 1400

Dow probably headed under 12500 as well.

As melacholic as it feels, I think that this has been a good move for denial dissapation. Maybe we're in the 7th inning stretch now.

Hollywood donor list to White House candidates

here (via Andrew Roth).

Adam Sandler has just increased in esteem. And this, after I already awarded him my "Best B-Movie" Producer and Actor awards.

Lileks writes about the contestants for the White House

here:
Fred Thompson has that Emperor Palpatine thing going on ... And I like that. Makes you want to say “yung SKYYY-wokkah,” does it?

Hillary – well, I feel sorry for her, in a way, because her time in the sun seems to have coincided with the exact moment the electorate decided it was tired of being ruled by Boomers.

Huckabee: he makes me recoil, instinctively. Some of this has to do with his positions, but it’s mostly the particular flavor of his religiosity and the thickness of its application to his campaign.

Mitt Romney? Super-brainy smart, a proven administrator, impeccably decent. He’s an admirable man in many ways. But my favorite finely-crafted piece of Stickley furniture is an admirable piece of wood in many ways, too. I cannot warm to Romney.

I like John McCain. He seems like the sort of guy you could have a beer with, right up to the moment where he smashes the bottle on the table and jams it in your face over something you said six years ago.

I like Rudy Guiliani, partly because his second-term sex scandal would involve someone closer to Teri Hatcher’s age than Jamie Lynn Spears. But mostly because he is smart, agrees with me on enough things, and does not appear to have a heart ruled by sentiment. I do not want a National Dad or even a Cool Brother (double-meaning unintended) for the President; I want someone with JFK’s optimism, Roosevelt’s steel, Truman’s irascibility, and so forth.

But it’s all for naught if the Obamaboom continues, because he has the zeitgeist at his back and a sail the size of an IMAX screen. People will vote for him because they want to be part of something larger, and that’s a rare and potent thing these days. Whether that’s a wise thing to do in perilous times depends on whether people think we’re living in perilous times, I suppose. We’ll see.

In the end, I think of the person I'd like to see behind the big desk the night the President addresses the nation after the nutwads pull off something big. It's certainly not Ron Paul. He'd probably bitch us out for starting it all by enraging the Barbary Pirates.
I agree with him a great deal, except I think Thompson should get higher regard, more like Yoda. Unfortunately, the electorate and the press responds to Fred the way Luke Skywalker and R2-D2 did in their initial encounter with the green puppet on Dagobah.

UPDATE: Vlad Putin really likes FDR's steel, too.

Labels: ,

Bill Richardson looks like he's selling his futures contracts

Monday, January 07, 2008

Article on Google's internal prediction markets

here (via Chris Masse).

The New Hampshire Showdown: Intrade v. Zogby

In this case, Zogby polls and Intrade prediction markets agree, so the overall head-to-head record will be 2-0-2 (2 wins for Intrade and 2 ties).

Intrade Zogby
Candidate




9% 29%
Clinton
91% 39%
Obama
1% 19%
Edwards
0% 6%
Richardson

2%
Kucinich

6%
Undecided
0%

FIELD
0%

Dodd
0%

Gore




82% 34%
McCain
16% 29%
Romney
2% 10%
Huckabee
0% 9%
Giuliani
0% 6%
Paul
0% 3%
Thompson

1%
Hunter

6%
Undecided
0%

FIELD
0%

Hagel
0%

Gingrich

The Zogby data is here. The Intrade snapshot was taken today at 1045 EST.

Recession sentiment increasing



DISCLOSURE: I'm short, and sold some more over the weekend.

Sunday, January 06, 2008

My good friend Todd has had another problem with his trades on TS

He wrote them, stating:
TS -
Straight up - this is b!@#$%^&. No other way to put it.
You explain to me how this is an unrepresntative price?? The game is tied 2-2 at the 2nd Period intermission - The total is 5.5. I sold the over to someone at 38. Therefor more than 72% of the total has been achieved in 66% of the game. If ANYTHING the advantage was given to the person I sold the over to. In addition, as anyone who gambles knows, in 1 goal games - an empty net goal is a possibiliy of over 60% - giving a complete adv