Thursday, March 24, 2016

Leave the bubble before it bursts

In “Brazil in Drag”: Hyman Minsky on Donald Trump, J.W. Mason says,

 "The trick to making money in an asset bubble is to cash out before it pops. Doing this by selling at the peak is hard; you have to time it just right. It’s easier and much more reliable to cash out the capital gains as they accrue; that just requires some way of moving them to a different legal entity. The precedent for Trump, in this reading, would be the utility holding companies that played such a big part in the stock market boom of the 1920s and were such a big target for regulation in the 1930s. Another parallel would be today’s private equity funds. To the extent that the funds cash out via so-called “dividend recapitalization” (special dividends paid by the acquired company to the PE fund) rather than eventual resale, an acquired company that doesn’t end in bankruptcy is money left on the table. It’s interesting, in this context, to think about Romney and Trump as successive Republican nominees: They may embody different cultural stereotypes (prissy Mormon patriarch vs womanizing New York vulgarian) but fundamentally they are in the same business of financial value extraction.

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Why Are Big Banks Offering Less Liquidity To Bond Markets?

Forbes asks Why Big Banks Offering Less Liquidity To Bond Markets? and finds that this is the result of the need to put aside the same capital for repo as for another other assets.

 "The “rent” for the balance sheet space associated with a given trade is the cost to bank shareholders when bringing the trade onto the bank’s balance sheet, above and beyond the mark-to-market profit on the trade. The main source of this cost is “debt overhang.” When a bank finances the purchase of an asset, it effectively transfers some of the value of the asset to its legacy creditors, who now have more backing for their debt claims. Similarly, when a bank issues equity in order to meet a higher regulatory capital requirement for a new position, thus making its balance sheet safer, creditors benefit from a transfer of wealth through the increased safety of their claim. For a trade to be viable, its mark-to-market profit must exceed the associated wealth transfer to creditors. Debt overhang is smaller for more highly capitalized banks, giving them an important advantage in competing for trades."

The profit required for the capital employed makes market less attractive for banks and increased the cost of funds (even when colleralised).

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Monday, March 14, 2016

Andrew Gelman: The problems with p-values are not just with p-values

The problems with p-values are not just with p-values:

Andrew Gelman says:

"Ultimately the problem is not with p-values but with null-hypothesis significance testing, that parody of falsificationism in which straw-man null hypothesis A is rejected and this is taken as evidence in favor of preferred alternative B (see Gelman, 2014). Whenever this sort of reasoning is being done, the problems discussed above will arise. Confidence intervals, credible intervals, Bayes factors, cross-validation: you name the method, it can and will be twisted, even if inadvertently, to create the appearance of strong evidence where none exists.

What, then, can and should be done? I agree with the ASA statement’s final paragraph, which emphasizes the importance of design, understanding, and context—and I would also add measurement to that list."
He concludes that there are two issues:  taking dataset and the statistical method as given, rather than these being part of the process of analyis; seeing statistics as a process that translates random nature into certainty.

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Sunday, March 13, 2016

What should be included in "good practices" for Tikz 101

Beamer - What should be included in "good practices" for Tikz 101:  Stefan Kottwitz

"Use styles. Whenever you have color, shape, fonts, alignment, define a TikZ style for it and use it. Don't apply such formatting details to nodes or edges, apply the style. A single point for consistent customizing.

Inherit styles. Start with a base node style (font family, base color), define styles which use base styles and add size or color or alignment - no repetitions, single points for global changes.

Use macros. Have consistent TikZ commands or command sequences, which can be reused and changed.

Use constants. For every value needed, such as distances, declare a constant via \def or a TikZ length command, so you can use it repeatedly and adjust it at a single source code position to customize a whole drawing or a lot of drawings.

Use relative positions. So you can change a reference coordinate, and all other positions will be automatically adjusted.

Let TikZ calculate for you. Once certain points such as corners are defined, use TikZ syntax to define a relative positions such as middle points and intersection points. Let TikZ do the geometry for you. If you change the reference points or image size, all will automatically adjust.

Name everything. Especially in non-trivial drawings, edges between named coordinates are much clearer to read than using coordinate numbers everywhere.

Use scopes. Don't repeat things - if you cannot apply a bunch of properties via styles, use a scope to apply settings to a whole area of a drawing. Also here, it's easy to change that part at a single position.

Use loops. If you need to repeat things, benefit from the power of TikZ \foreach loops to reduce the amount of repeated code.

Don't nest TikZ pictures. There is always another way to do it."

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The death and rebirth of the stock exchange —

The death and rebirth of the stock exchange — "The clue as to why the London Stock Exchange has risen sevenfold in value in the past seven years is not contained in its name. The best days of being a stock exchange are in the past, when they were near-monopolies owned by market-making members and could easily make money. That was long ago."

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