M&A synergies

M&A synergies and negative synergies Epicurean Dealmaker: The Privy Counselor:

"The point, in other words, is that Blackstone divesting its advisory business has nothing to do with bucking a nonexistent trend on Wall Street to add business lines like barnacles on a freighter. Instead, it has everything to do with dumping business lines that add no value, subtract value, or fail to realize their own value due to inherent negative synergies resulting from persistent structural conflicts of interest with the parent company. In other words, it is business as usual."

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Sorry, But Disruptive Technology WILL Kill Banks

Sorry, But Disruptive Technology WILL Kill Banks: "Allegedly, John Authers recently wrote an article in the Financial Times entitled “Disruptive technology will not kill banks“. I say allegedly because despite the article being cited and commented on by two people whose analysis and opinion I respect (Chris Skinner and Jeff Marsico), I cannot get through the FT’s phalanx of pop-up ads and paywalls to actually read it with my own eyes. By trying to open the link multiple times, I was able to spy a few words at a time before the ads obscured the subheading that read “Banking is too heavily regulated to be threatened by newcomers”"



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Volatility concepts and the risk premium

An interesting overview of risk and volatility from the BIS.  Volatility concepts and the risk premium:

"Statistical measures of volatility are based on observed asset returns over a given time interval. This can be done in various ways. A simple, model-free approach is to compute the standard deviation of the actual returns on a given asset over a particular time window, so-called realised (or "historical") volatility. Model-based approaches have also been proposed: ARCH (autoregressive conditional heteroscedasticity) models, for example, assume that the variance of returns fluctuates over time according to a specific time series model.

"

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Expectations of Returns and Expected Returns

Expectations of Returns and Expected Returns: "We analyze time-series of investor expectations of future stock market returns from six data sources between 1963 and 2011. The six measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. We reconcile the evidence by calibrating a simple behavioral model, in which fundamental traders require a premium to accommodate expectations shocks from extrapolative traders, but markets are not efficient."



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Learning means that behaviour is not stationary

Stationary processes | The Leisure of the Theory Class:

"I said earlier that in stationarity environment, the point in time which we denote by does not correspond to anything about the process itself but only reflect the point in time in which we start observing the process. In this example this is indeed the case with Craig, who starts observing the coin process at time . It is not true for us. Our subject matter is not the coin, but Craig. And time has a special meaning for Craig. Bottom line: Rational agent in a stationary environment will typically not behave in a stationary way."

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Trade

CONVERSABLE ECONOMIST: Evidence on the Samuelson Conjecture: "For a useful starting point to thinking about how the rise of emerging economies like China affect global trade, I recommend a symposium in the Spring 2012 issue of JEP. Gordon H. Hanson starts with "The Rise of Middle Kingdoms: Emerging Economies in Global Trade."  "Gains from Trade when Firms Matter," by Marc J. Melitz and Daniel Trefler, looks at the benefits of trade offers introduction to modern models of trade driven from variety, shifts toward more efficient firms, and technological gains. For an introduction to models of international trade based on by differences in relative productivity across countries--like the model used by di Giovanni, Levchenko, and Zhang--that same has a useful article called "Putting Ricardo to Work," by Jonathan Eaton and Samuel Kortum. Finally, Jonathan Haskel, Robert Z. Lawrence, Edward E.  Leamer, and Matthew J. Slaughter look at "Globalization and U.S. Wages: Modifying  Classic Theory to Explain Recent Facts." "



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Money and Entropy — Design Matters — Medium

Money and Entropy — Design Matters — Medium: "This all sounds terribly wonkish and academic, but understanding money in a scientific sense is important given what you can do with it (and the problems a lack of it create)."



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The real 10 algorithms that dominate our world — Medium

The real 10 algorithms that dominate our world — Medium: "The other day, while I was navigating Reddit I found an interesting post that was called The 10 Algorithms That Dominate Our World by the author George Dvorsky which was trying to explain the importance that algorithms have in our world today and which ones are the most important for our civilization."



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Pimco runs risks in turning up the ‘vol’ - FT.com

Pimco runs risks in turning up the ‘vol’



Nice overview from the F-Times of: risk to increase volatility specifically and the way that crowded trades can be build by conventions that become oversold.

"In fact, so many different kinds of investors are now “selling volatility” that BlackRock’s Dennis Stattman worried at the same conference that it had become a “crowded trade”. Sceptics worry these new players might be selling flood insurance on the cheap, just before a deluge."

Shadow Banking: In depth news, commentary and analysis in a series from the Financial Times

Shadow Banking: In depth news, commentary and analysis in a series from the Financial Times:

"Shadow banking covers a wide range of ‘non-bank’ institutions that perform many of the functions of traditional banks, including lending, but do so outside of deposit-taking banks. The FT examines this sector, which is reshaping how companies fund themselves"

The evolution of the financial system: the regulation and return of banks to traditional activities and the emergence of new institutions to fulfill the roles that have been abandoned.

Frequentism and Bayesianism IV: How to be a Bayesian in Python

Frequentism and Bayesianism IV: How to be a Bayesian in Python: "I won't be so much concerned with speed benchmarks between the three, as much as a comparison of their respective APIs. This post is not meant to be a tutorial in any of the three; each of them is well documented and the links above include introductory tutorials for that purpose. Rather, what I want to do here is a side-by-side comparison which will give a feel for how each package is used. I'll propose a single relatively non-trivial test problem, and show the implementation and results of this problem using all three packages. Hopefully by seeing the three approaches side-by-side, you can choose which package might be best suited for your particular application."



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Rules push on clearing houses poses risk to banks - FT.com

Rules push on clearing houses poses risk to banks - FT.com: "Trades not going through clearing houses will also need to be backed by more collateral. However, the LSE study argued that investors being allowed to net their portfolios in a single place dramatically reduced the changes in margin valuation. That single place could be either a single fully integrated clearing house, or a series of fully interoperable ones."



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Impact of Fed Tapering Announcements on Emerging Markets

Impact of Fed Tapering Announcements on Emerging Markets:

 "This paper analyzes market reactions to the 2013–14 Fed announcements relating to tapering of asset purchases and their relationship to macroeconomic fundamentals and country economic and financial structures. The study uses daily data on exchange rates, government bond yields, and stock prices for 21 emerging markets. It finds evidence of markets differentiating across countries around volatile episodes. Countries with stronger macroeconomic fundamentals, deeper financial markets, and a tighter macroprudential policy stance in the run-up to the tapering announcements experienced smaller currency depreciations and smaller increases in government bond yields. At the same time, there was less differentiation in the behavior of stock prices based on fundamentals."

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‘Yellen Index’ flashes imminent Fed tightening

‘Yellen Index’ flashes imminent Fed tightening - FT.com:

"This is the intriguing premise of a tool being used internally at BlackRock, the world’s largest fund manager, which it has nicknamed “the Yellen index”. It is a measure that suggests, on the economic indicators favoured by Ms Yellen, monetary tightening is already overdue and the Fed falls further behind the curve with every passing day."

This could be a really good additional exercise for the interest rate assignment: create a "Yellen Index".

Reproducible research is still a challenge

Reproducible research is still a challenge: "We used knitr to implement the analysis in a literate programming style. The entire analysis, including justification of the core functions, is available to interested people. However, working with blocks of ugly data-wrangling code, or with long-running calculations, remains a challenge."



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Buttonwood: Pensions à la mode | The Economist

Buttonwood: Pensions à la mode | The Economist: A comparison of pension returns across countries.  This is an exercise in assessing the returns from a standard investment 60% in equities and 40% in bonds.

"The most important thing for the typical worker is to avoid the worst outcome, not aim for the best. Yet, understandably, few feel they have the expertise to allocate their investments accordingly. As a result many opt for what appears to be the safe option in the form of target-date funds (in America) or default funds (in Britain). These funds are certainly a lot better than the choices employees might make if left to their own devices—placing their entire portfolio in cash or in their employer’s shares, for example. Such funds generally follow a “lifestyle approach” in which the bulk of the portfolio is invested in equities when the employee is young and then switched into government bonds as retirement draws near."

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The VIX Is Not A Great Way to Measure Complacency - Bloomberg View

The VIX Is Not A Great Way to Measure Complacency - Bloomberg View: "This is I think roughly the way to read the notion, which my Bloomberg View colleague Mohamed El-Erian examined today, that low readings on the VIX -- an index of implied volatility in short-dated S&P 500 index options -- mean that the market is "complacent." So:

Equity volatility is basically a mean-reverting thing.2
The volatility index is below its long-run average.
Therefore volatility will go higher.
Soon and horribly.
Run, you fools!
Why are you being so complacent?"



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Chimps and games

Chimpanzee choice rates in competitive games match equilibrium game theory predictions : Scientific Reports : Nature Publishing Group:

"The capacity for strategic thinking about the payoff-relevant actions of conspecifics is not well understood across species. We use game theory to make predictions about choices and temporal dynamics in three abstract competitive situations with chimpanzee participants. Frequencies of chimpanzee choices are extremely close to equilibrium (accurate-guessing) predictions, and shift as payoffs change, just as equilibrium theory predicts. The chimpanzee choices are also closer to the equilibrium prediction, and more responsive to past history and payoff changes, than two samples of human choices from experiments in which humans were also initially uninformed about opponent payoffs and could not communicate verbally. The results are consistent with a tentative interpretation of game theory as explaining evolved behavior, with the additional hypothesis that chimpanzees may retain or practice a specialized capacity to adjust strategy choice during competition to perform at least as well as, or better than, humans have."

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How the Recession Reshaped the Economy, in 255 Charts - NYTimes.com

Info graphics - how employment has changed post recession in the US:



How the Recession Reshaped the Economy, in 255 Charts - NYTimes.com:



Number employed and earnings.

Hedge Fund Investors Aren't as Dumb as They Look - Bloomberg View

Hedge Fund Investors Aren't as Dumb as They Look: Though returns have been poor, there is some evidence that they can help to reduce risk.

"Why invest in hedge funds? Citi says, "since the [global financial crisis], confidence that hedge funds can outperform the underlying markets has been strained and that more emphasis has been placed on their role in controlling volatility." But investors are happy enough to pay for that. An endowment manager quoted by Citi:"

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The demise of the bond market

The most obvious examples are governments. Greece, which returned to markets by issuing €3bn in five-year bonds in April, could have raised much more but its aim was to create benchmarks and rebuild its yield curve – the availability of a range of bonds with different maturities. 

Like Ferrari, Greece’s debt agency knows its interests lie in helping the resale market; the country’s future financing needs are considerable, to say the least. Companies looking to raise debt over a number of years think similarly.

http://www.ft.com/cms/s/0/fb3b651e-e6fb-11e3-aa93-00144feabdc0.html?ftcamp=published_links/rss/markets/feed//product&siteedition=uk#axzz3378rNeUm

Machines vs Routine Tasks

Brad DeLong reviews Summers on Piketty and returns to his theme.



"Think of it this way: Humans used to have five ways of creating economic value: through backs, through fingers, through routine control, through smiles, and through creative insight:

1. Strong backs (usually those bathed in the steroid testosterone) could do the heavy lifting. 
2. Nimble fingers could do the fine manipulating. 
3. Cybernetic control loops could keep the lifting and manipulating on their proper tracks. 
4. Smiles--in fact, an entire universe of human social interactions--could keep us as a group all pulling in roughly the same direction, playing positive-sum rather than negative-sum economic games, and could also provide the personal services from which we derive so much of our human well-being. 
   
5. Genuine creative insight could think up new ways of doing things and new things to do that would be useful: luxurious or convenient, and over the course of time could transform conveniences into necessities, luxuries into conveniences, and invent yet new dimensions of luxury."

His thesis that backs, fingers and brains are increasingly substitutes rather than compliments for machines.  In some ways this is an evolution of routine tasks.  As machines become more sophisticated, what is defined as routine becomes increasingly broad. 

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Keynes, possibility for our grandchildren

Elizabeth Kolbert: Discusses Economic possibilities in The New Yorker there is a nice overview of some of the reasons why the leisure has not arrived.  

"Joseph Stiglitz, of Columbia University, by contrast, takes a constructivist approach. People’s choices, he argues, are molded by society and, over time, become self-reinforcing. We “learn how to consume by consuming,” he writes, and how to “enjoy leisure by enjoying leisure.”"

Noahpinion: Entrepreneurship and the pricing of uncertainty

Noahpinion: Entrepreneurship and the pricing of uncertainty:

"Uncertainty", also called "Knightian uncertainty", is like risk, but not quite the same. Risk is when you can calculate the probability of gains and losses, like when you play roulette or blackjack. Uncertainty is when you don't know the odds. Frank Knight observed that entrepreneurship involves a lot more uncertainty than risk. When you start a new business, you don't really know how to calculate the odds that your idea will succeed - whether personal computer users will embrace a graphical user interface, whether people will want to post their pictures on a social network, etc."

This is similar to a theme of my research that says that speculation is in part an attempt to deal with uncertainty. Knight argues that entrepreneurship is not about risk (as this can be quantified and insured or hedged away).  As such, the wealth of the technology entrepreneurs is a return for taking a gamble when the odds are completely unknown. As Noah Smith says, people do not like uncertainty.  They at least want to know the odds.



Smith argues that the return to uncertainty is overpriced.  He cites the discussion by Felix Salmon and Gideon Lewis-Klaus' book No Exit.  However, can this be the way to look at it?  The risk or odds are unknown. If you want to think of it this way, there should be a balance of supply and demand and, with supply of potential entrepreneurs increasing, the price should fall.  This is not the return that comes from success but the probability of being successful.  The same amount of success could be spread over more entrepreneurs but it is not clear that the amount of success is fixed.  In other places it is argued that the more the supply of entrepreneurs, the more the chances of new and successful ideas.

A natural experiement

This gives a very good overview of a natural experiment.

British and French educational legacies in Africa | vox: "While the choice of colony was not random, the exact location of the border – up to some distance – was. In the partitioning process colonisers drew borders without accurate knowledge of the terrain, disregarding local circumstances and cutting through homogeneous geographic, cultural and ethnic entities. Thus, the drawing of borders provides a situation of a quasi-ideal natural experiment, where, by historical accident, individuals with otherwise identical background found themselves randomly divided into two groups: one subjected to French policies and another ruled by Britain."

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Wipe out rentiers with cheap money - FT.com

Martin Woof says Wipe out rentiers with cheap money - FT.com:  Is this a counter to the Piketty thesis?  May it suggest some way that r will be lower than g?

"This policy, however unpopular with some, is better than the available alternatives. Keynes even had a phrase for it – the “euthanasia of the rentier”. In a world of abundant savings, the available returns ought to be low; this is a consequence of market forces to which central banks are responding."

It would be consistent with a story that said with large blocks of inherited wealth seeking investment returns, the returns may fall; it would not counter the accusation that larger blocks of wealth have attractive investment opportunities that are not open to most.

Hedge funds, fortunes and merit | FT Alphaville

Hedge funds, fortunes and merit | FT Alphaville: "Small and young hedge funds are nimble, their managers are focused, and they can concentrate their capital in a small number of good ideas without moving prices or attracting attention. One study by Barclays found that funds under two year’s old, and managing less than $100m typically make better investment returns than their larger older peers."



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What Timothy Geithner Really Thinks

Geithner explains how the "bail out" has made money.

"He paused and looked out at a crowd that, it’s safe to say, probably did not fully appreciate how intense the anger around the financial bailouts had been and how close the country was to the precipice of a full-on depression. “We are going to earn, all in, a couple hundred billion dollars,” Geithner said. And six years after the bailouts, the too-big-to-fail banks and the insurance giant A.I.G. have since repaid the money they took from the government. Even the rescues of Fannie Mae and Freddie Mac, the mortgage-lending companies that once had to borrow $187.5 billion, have turned profitable. “Much of the dominant view about the strategy,” Geithner said, “is the inverse of the truth."

The Fed is filling a market failure.  The myopia and high-level of risk aversion mean that the government is the only institution that can provide liquidity to the system in exchange for assets that have value but are not valued at present.  The demand for liquidity is so great that additional liquidity must be provided.

Nobel economist Gary Becker showed that Mike Milken was history’s greatest feminist - Quartz

Nobel economist Gary Becker showed that Mike Milken was history’s greatest feminist - Quartz: "Gary Becker, who passed away this week, was a man who changed the field of economics. Before Becker, economics was the study of buying and selling things. But Becker realized that economics was really about tradeoffs, and that there are a lot of tradeoffs in the world that don’t involve money—or don’t only involve money. (For example, instead of writing this article, right now, I could be learning hip-hop dancing or starting a biotech company.)"



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About that AstraZeneca bid defence … | FT Alphaville

FT Alphaville:  

"According to Eroom’s Law, the number of drugs you can get to market per $1bn of R&D spending halves about every nine years and has done since 1950. Spiralling R&D costs and a failure rate at Phase I trials of about 90 per cent mean the economics at the sharp end of that law don’t make much sense, even for the biotechs. Better to leave the really experimental stuff to university spinouts and single-punt MBOs. Then, if their success looks plausible, the bigger pharma companies can in-licence, partner and acquire outright to lever scale on their own specialisms in areas such as imaginative trial design and patent evergreening."

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Chromebooks: Not much room for competition

Chromebooks: Not much room for competition.  Its all about price.

"Major laptop makers are paying attention and are adding Chromebooks to their product lines. They require basically the same production methods as their Windows laptops, so it's a low-cost effort to build them. The Chromebook doesn't require big hardware, so the component inventory is not too heavy."

Product life cycle and perfect competition.

Win-Vector Blog » Learn Logistic Regression (and beyond)

Win-Vector Blog » Learn Logistic Regression (and beyond):

 " Logistic regression is often a winning method and we will use this article to discuss logistic regression a bit deeper. By the end of this writeup you should be able to use standard tools to perform a logistic regression and know some of the limitations you will want to work beyond."

Lovely overview

10 reasons to switch to ggplot | Mandy Mejia

10 reasons to switch to ggplot | Mandy Mejia: "Making plots is a necessary and useful task for anyone who works with data. While making the standard plots is a pretty straightforward task in most statistical programming languagues, including R, when it comes to using R‘s base graphics to make custom plots (the plots you actually want to make) things can get complicated. As with many of life’s problems, Hadley Wickham comes to the rescue."



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Why UPS Trucks Don't Turn Left

Why UPS Trucks Don't Turn Left: To reduce fuel use and accidents. Confirmed by Myth-busters.

"Mythbusters likely failed to save time on the route by following the rule even more stringently than UPS. While the no left turn rule has an appealingly simple and algorithmic quality to it, you will see UPS drivers take left turns on occasion, especially in residential neighborhoods without much incoming traffic. Asked how often UPS drivers turn right, a driver told ABC:"

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Smart beta

Is ‘smart beta’ the latest magic money tree? - FT.com: discusses passive investment with a "twist".

"The typical twist is to substitute the standard market capitalisation weighting of an equity index with an alternative weighting, such as dividends or earnings. This is claimed as a smarter approach as market cap indices will inevitably overweight expensive stocks and underweight cheap ones."

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Sampling bias and sampling error

Tim Harford FT.com: is a discussion of "Big Data" looks at sampling bias and sampling error.

"The Literary Digest, in its quest for a bigger data set, fumbled the question of a biased sample. It mailed out forms to people on a list it had compiled from automobile registrations and telephone directories – a sample that, at least in 1936, was disproportionately prosperous. To compound the problem, Landon supporters turned out to be more likely to mail back their answers. The combination of those two biases was enough to doom The Literary Digest’s poll. For each person George Gallup’s pollsters interviewed, The Literary Digest received 800 responses. All that gave them for their pains was a very precise estimate of the wrong answer."

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The cost of acquiring information

Streetwise Professor discussed Michael Lewis’s HFT Book: and highlight an application of the Grossman-Stiglitz idea that there will be an equilibrium where the cost of acquiring information will be equal to the benefit of obtaining that information.

 "Moreover, it’s not so clear that order flow information is “non-public”.  No, not everyone has it: HFT has to expend resources to get it, but anybody could in theory do that. Anybody can make the investment necessary to ping a dark pool. Anybody can pay to get a faster data feed that allows them to get information that everyone has access to more quickly. Anybody can pay to get quicker access to the data, either through co-location, or the purchase of a private data feed. There is no theft or misappropriation involved. If firms trade on the basis of such information that can be obtained for a price that not everyone is willing to pay, and that is deemed illegal, how would trading on the basis of what’s on a Bloomberg terminal be any different?"

IS-LM vs. Minsky | LARS P. SYLL

IS-LM vs. Minsky | LARS P. SYLL:  The limitations of mechanical IS-LM"

IS-LM is typically set in a current values numéraire framework that definitely downgrades the importance of expectations and uncertainty — and a fortiori gives too large a role for interests as ruling the roost when it comes to investments and liquidity preferences. In this regard it is actually as bad as all the modern microfounded Neo-Walrasian-New-Keynesian models where Keynesian genuine uncertainty and expectations aren’t really modelled. Especially the two-dimensionality of Keynesian uncertainty — both a question of probability and “confidence” — has been impossible to incorporate into this framework, which basically presupposes people following the dictates of expected utility theory (high probability may mean nothing if the agent has low “confidence” in it). Reducing uncertainty to risk — implicit in most analyses building on IS-LM models — is nothing but hand waving."

There is no uncertainty.

Shadow rate

Summarizing monetary policy | Econbrowser and the use of the shadow rate.

 "A recent paper by Dora Xia, a UCSD graduate student who expects to complete her Ph.D. this spring, and Cynthia Wu, a former UCSD student who is now an assistant professor at the University of Chicago, makes several contributions to this literature. First, most previous applications of the shadow rate model have involved arduous numerical simulations to calculate its full predictions. By contrast, Wu and Xia develop a very simple closed-form expression that gives a very good approximation to the predictions of the model for the yield of any maturity. Here is a graph showing the estimate of the shadow rate that comes out of their approach. Up until 2009, this basically coincides with the observed fed funds rate, but since then, the implied shadow rate has been quite negative."

This can be used to assess whether monetary policy is appropriate and can be utilised to make forecasts about interest rates.  This could be a supplement to the Taylor Rule.



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Surprise

Surprise and Digression | The Leisure of the Theory Class:  An interesting area.  What is a "surprise"?  When thinking about economic expectations, the surprise is something that is unusual, it is something that is not expected.  Does this mean that it is at the tail of the probability distribution?  Does it mean something outside of that distribution?  Is it possible to use insights from other fields to get of a handle on this and assist in the understanding of crash risk?

"They propose that surprise be measured by the Kullback-Liebler divergence between the prior and the posterior. As with many good ideas, Itti and Baldi are not the first to propose this. C. L. Martin and G. Meeden did so in 1984 in an unpublished paper entitled: `The distance between the prior and the posterior distributions as a measure of surprise.’ Itti and Baldi go further and provide experimental support that this notion of surprise comports with human notions of surprise. Recently, Ely, Frankel and Kamenica in Economics, have also considered the issue of surprise, focusing instead on how best to release information so as to maximize interest."

James Surowiecki for Democracy Journal: The Dismal Art

James Surowiecki reviews the history of forecasting and quotes.

"Its fitting that Friedman’s book starts with a financial crisis, namely the Panic of 1907, which he argues in some sense gave birth to modern forecasting. That panic began with a failed attempt by the financier Heinze brothers, Otto and Augustus, to corner the copper market. The collapse of their scheme drove institutions that had lent money to the Heinzes into bankruptcy and created a climate of fear that led to massive runs on New York banks and a series of bank failures, even as the Dow fell by almost half. More important, the crisis on Wall Street spilled over into the real economy, with industrial production taking a major hit and economic growth falling sharply. The crisis was shocking both because major panics were thought to be a thing of the past, and because the economic consequences of the crash seemed out of all proportion to the causes. And while there had obviously always been people on Wall Street trying to predict the future, the panic fueled people’s appetite for any information that could insulate them from market turmoil."

It sounds so like 2007...

New York Law

Felix-Salmon discusses why hedgies would rather Porta Rico's bonds were issued in New York than elsewhere.

So when you see hedge funds demanding that their new Puerto Rico bonds be issued under New York law, don’t kid yourself that they particularly value the protections that New York law gives them, or that they think that New York courts will allow them to recover most of their money in the event of default. Rather, they’re just hoping that Puerto Rico won’t bother defaulting on those bonds in the first place. And they might well be right about that.

It is more trouble (and expense) to default on these bonds than others.

Why Rational People Can't Succeed as Economic Forecasters - Justin Fox - Harvard Business Review

Harvard Business Review takes a look at economic forecasting.  One comment,

"Is there a risk that you get overconfident because of that? One of the things that happened in the ‘20s is that things kept going so well, and the forecasters who predicted a continued boom were right again and again. If you get very confident that government knows what it’s doing and can manage the economy well, does that increase risk at all?"

This is consistent with the ideas that trends can generate positive feedback that encourages overshooting and complacency.  This make it all the more likely that a bubble will ensure.  The difficulty is that it starts with something real and becomes over-extended.  Where do the two meet?:

Barclays’ bonuses give the City a say on banking values - FT.com

FT.com makes the Rooney analogy:

"It is the Wayne Rooney answer. Weekend reports say that the Manchester United football star is negotiating an extended, improved contract even though the team is enduring the worst season for years. His employers could respond to poor results by cutting wages but would then lose their star players, have to pay nearly as much for replacements who are not nearly so good and risk falling into a downward spiral. So it is in investment banking, where the worst of all possible worlds is to have an A-grade cost base and B-grade revenue potential. Thus, while Barclays sticks to its big league investment banking strategy, it has little choice but to pay up."

David Graeber: Play at the heart of everything

What’s the Point If We Can’t Have Fun? | David Graeber | The Baffler:

 "It’s hardly surprising, then, that this aspect of Kropotkin’s argument was ignored by the neo-Darwinists. Unlike “the problem of altruism,” cooperation for pleasure, as an end in itself, simply could not be recuperated for ideological purposes. "

It is a lot more interesting than that quote.

James Surowiecki: The End of Brand Loyalty : The New Yorker

James Surowiecki: The End of Brand Loyalty : The New Yorker:



The internet, the free flow of information and the decline of brands.  If  brand delivers the same product each time, that can be valuable.  However, when experience becomes more valuable and the cost and availability of information plummets, brands lose value.



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Viral math | Felix Salmon

Felix Salmon on the math of going viral on Facebook.

As a result, the important formula isn’t S·F·C; rather it’s S·F·FBT·C, where FBT is the probability that the article you’re sharing is going to actually appear in your friends’ feeds. In recent months, Facebook has been taking its foot off the throttle quite dramatically — but no one knows how long that’s going to last.

I am not sure what Facebook does to Facebook does to affect this process.  However, the model is one of chaos where changes in the initial condition (S, F, C etc) can have dramatic effects and can be adapted to other situations.

It Cost JPMorgan $1.5 Billion to Value Its Derivatives

Bloomberg assesses the accounting for derivative contracts.  The cost of funding a position that is in the money.

"But that's weird too, because not every bank has the same funding cost. It would be odd if, say, JPMorgan (5-year CDS in the 60s) was willing to pay more to do a derivative trade than Goldman Sachs (high 80s), just because it funds more cheaply. Presumably that sometimes happens,6 but mostly people trade based on market prices, and in theory at least there should be one market price. How do you calculate that market price? Probably you can take your own credit spread into account, but presumably also there are some disconnects. So if "the market" charges 50 basis points of FVA, and your own funding costs blow out to be, say, 200 basis points, then the value of the derivative receivable to you is less than its market value."

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A history of macroeconomic thinking

Roger Farmer: My Economic Window: Neo-Paleo-Keynesianism: A suggested definition:

"There has been a lot written on the blogosphere in recent weeks about the microfoundations of macroeconomics. Tony Yates argues in favour of micro-founded structural models. Adam Posen is sceptical of micro-foundations and Simon-Wren Lewis, Noah Smith and Nick Rowe call for a more eclectic approach. For those looking for a neat summary of these debates, Paul Krugman traces the history of macroeconomic ideas.  Responding to a  piece by Brad Delong, he argues that there has been a recent resurgence of what he calls “neo-paleo-Keynesianism”.  This is very useful concept and I have much in common with the ideas expressed in Paul's piece. This essay offers a novel definition of the term that Paul coined and an invitation to fellow academics to join me in pursuing an agenda based on this definition."

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What's That You're Calling a Bubble? - Justin Fox - Harvard Business Review

What's That You're Calling a Bubble? - Justin Fox - Harvard Business Review:

"So maybe we should tweak the second sentence of Brunnermaier’s definition, to something like: Bubbles arise if the price far exceeds the asset’s fundamental value, to the point that no plausible future income scenario can justify the price. A little clunky, and of course “plausible” is a judgment call. But it does get at the idea that we shouldn’t be calling every last rise in P/E ratios a bubble."

The bubble in bubbles and the difficulty of calling bubbles before the event relative to how easy it is after the event.

Scholarship: Beyond the paper

Scholarship: Beyond the paper : Nature : Nature Publishing Group:

"Henry Oldenburg created the first scientific journal in 1665 with a simple goal: apply an emerging communication technology — the printing press — to improve the dissemination of scholarly knowledge. The journal was a vast improvement over the letter-writing system that it eventually replaced. But it had a cost: no longer could scientists read everything someone sent them; existing information filters became swamped."

The future of academic publishing (maybe).

Moocs

Learning about social learning in MOOCs: From statistical analysis to generative model:

"We study user behavior in the courses offered by a major Massive Online Open Course (MOOC) provider during the summer of 2013. Since social learning is a key element of scalable education in MOOCs and is done via online discussion forums, our main focus is in understanding forum activities"

Why do people drop out?

Beating the Market Has Become Nearly Impossible | Institutional Investor

A look at alpha and beating the market.

Risk, money illusion and new financial assets

Worthwhile Canadian Initiative: Nominal-loss-aversion and its consequences:

"Suppose some promoter comes along with a new financial asset. The promoter promises that you will never lose money if you invest your savings in this new financial asset. Even better, he promises that he will buy back that financial asset at the issue price any time you ask him to. And suppose all the people who suffer from nominal-loss-aversion take him up on his offer, and buy the new financial asset."

There is clearly some political power involved here. However, this is not the whole story.  The safe assets are being swallowed up by overseas central banks as a parking space for US dollars accumulated as a result of foreign exchange intervention.  This means that the return on the safe asset is not longer a compensation for real losses (it does just about cover nominal loss). As such there is a demand for a safe asset with a higher return. It may be impossible, but where there is demand, there is supply.

Mind and Machine - logistics

Unhappy Truckers & Other Algorithmic Problems - Nautilus: The scheduling problem.

"Powell’s biggest revelation in considering the role of humans in algorithms, though, was that humans can do it better. “I would go down to Yellow, we were trying to solve these big deterministic problems. We weren’t even close. I would sit and look at the dispatch center and think, how are they doing it?” That’s when he noticed: They are not trying to solve the whole week’s schedule at once. They’re doing it in pieces. “We humans have funny ways of solving problems that no one’s been able to articulate,” he says. Operations research people just punt and call it a “heuristic approach.”"

  Machine optimisation vs the controller.

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The Buffett difference, derivatives edition | FT Alphaville

The Buffett difference, derivatives edition | FT Alphaville: "The derivatives also showcase other Buffett skills — selling risk when many others are buying (pushing the price beyond what is rational) and the confidence that he will be able to invest the additional float successfully over time to make the whole enterprise worthwhile."

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The Buffett difference, derivatives edition | FT Alphaville

The Buffett difference, derivatives edition | FT Alphaville: "The derivatives also showcase other Buffett skills — selling risk when many others are buying (pushing the price beyond what is rational) and the confidence that he will be able to invest the additional float successfully over time to make the whole enterprise worthwhile."

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Microfoundations

A discussion of microfoundations with Stephen Williamson: New Monetarist Economics: Microfoundations:

 "I've never much liked the word "microfoundations," which comes from the title of the Phelps volume. When the Phelps volume came out in 1970, micro and macro looked like they came from people living on different planets, and you had to convince people that it made sense to take ideas from Mars and use them on Venus. We know better now, of course, and economics is one unified whole. People who call themselves macroeconomists make liberal use of game theory, mechanism design, information theory, optimal growth theory, etc., etc. Solid economists worked all that stuff out for us to use, and it would be wasteful to leave it on the shelf."

and a reply by Nick Rowe
'
Microfoundsations that we like vs microfoundations that we can solve

A summary of the evidence that most published research is false | Simply Statistics

A summary of the evidence that most published research is false | Simply Statistics:

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"Hold to maturity" or "Available for Sale"

FT.com has a story about the effect of Volcker Rule.  It does not make clear why the rule requires the re-classification.  In any case, it highlights one way that accounting classification can affect the value of assets and the capital required to support those assets:

"financial officer, told analysts on a conference call, the bank is reclassifying the CDOs from “held to maturity” (HTM) to “available for sale” (AFS). Gains and losses on securities that are held as AFS feed into financial companies’ regulatory capital ratios under incoming Basel III rules.  Zions estimated that reclassifying its portfolio of CDOs to AFS would result in its tier one common equity ratio falling from 10.47 to 9.74 per cent."

Raising the Minimum Wage: Old Shibboleths, New Evidence - NYTimes.com

Raising the Minimum Wage: Old Shibboleths, New Evidence - NYTimes.com:

 "For a good overview, look to a paper by Arindrajit Dube of the University of Massachusetts, Amherst; T. William Lester of the University of North Carolina, Chapel Hill; and Michael Reich of the University of California, Berkeley. Using two decades of data and side-by-side comparisons of bordering counties in the United States, they find that higher minimum wages raise the earnings of low-wage workers and have negligible effects on employment levels. According to their estimates, an increase of 10 percent in the minimum wage would have a statistically negligible effect on employment in industries and occupations employing minimum-wage workers."

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Bubbles

Worthwhile Canadian Initiative: We know the economy needs a bubble; but how big?: "Mr Ponzi issues a financial asset. Assume that the demand to hold that asset grows at the same rate as GDP. If people are willing to hold that asset at a rate of return less than the growth rate of GDP, Mr Ponzi can run a sustainable Ponzi scheme. He can issue new assets to pay the interest on the existing assets, and still issue a few more to provide some income for himself. Another name for a sustainable Ponzi scheme is a rational bubble."

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Tim Harford Fairness is shared by our environment

Tim Harford — Article — Fairness is shared by our environment:

 "Kaplan teamed up with other researchers, including Vernon L Smith, a winner of the Nobel memorial prize for economics, to test this idea. They concluded that sharing accompanies “unsynchronized variance in resource availability” – researcher-speak for “You never know who’ll be next to bag a monkey.”
Megan McArdle, in her fascinating forthcoming book The Up Side of Down, observes that modern societies can’t make up their minds whether to adopt the morality of farmers or of hunters. The idea that hard work needs to be rewarded is a farmer’s view of fairness. The claim that “we’re all in this together” is hunter-thinking"

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Can robots write sports previews? |

Can robots write sports previews? |:   Yes

"If we can now plug in team-specific names, places and data wherever there’s one of those blue-bracketed placeholders above, we could customize a game preview so specifically to a given event that I’m confident 95% of the reading public couldn’t tell if those sentences were composed by a human writer or an algorithm, like the one I pseudo-reverse-engineered and highly simplified below:"

The government is the only reason U.S. inequality is so high

The Washington Post The government is the only reason U.S. inequality is so high:

"But it's worth noting that you can get U.S. inequality down to the levels seen in extremely egalitarian societies like Sweden by doing nothing but changing tax and transfer policies. Pre-tax/transfer inequality in the U.S., as the above chart by the Luxembourg Income Study’s Janet Gornick shows, is about equal to that of Sweden, Norway, and Denmark. Finland, Germany, and Britain actually have higher pre-tax/transfer inequality than the U.S. does. The only reason these countries enjoy such low levels of inequality is that their tax and transfer systems reduce inequality much, much more than the U.S. system does."

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Environmental Economics: Env-Econ 101: Hotelling's Rule Part 1

Environmental Economics: Env-Econ 101: Hotelling's Rule Part 1:

 "That's Hotelling Rule in its simplest form.  For a non-renewable, exhaustible resource with completely known stock, no discoveries possible, no alternatives, no recycling, private ownership and constant costs of extraction, the price of the resource will increase at the interest rate over time."

Looking forward to part 2.

A statistical review of 'Thinking, Fast and Slow' by Daniel Kahneman - Burns Statistics

A statistical review of 'Thinking, Fast and Slow' by Daniel Kahneman - Burns Statistics: "I failed to find Kahneman’s book in the economics section of the bookshop, so I had to ask where it was.  ”Oh, that’s in the psychology section.”  It should have also been in the statistics section."

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FIFA Seeding Explained

World Cup seeding: How to play the game:  Don't play Indonesia.  This will bring down the average points in a world cup year.

"Unfortunately for the orange hordes of Dutch fans, that is exactly what their team did in June 2013. If they hadn't played that game they would be one of the top seeds, not Switzerland, who played fewer friendlies than most teams in the final 12 months that counted towards World Cup qualifying ranking points."

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Who needs machines anyway?

Nicholas Carr - The Atlantic: Assesses the implications of allowing machines to do more and more tasks.

"Who needs humans, anyway? That question, in one rhetorical form or another, comes up frequently in discussions of automation. If computers’ abilities are expanding so quickly and if people, by comparison, seem slow, clumsy, and error-prone, why not build immaculately self-contained systems that perform flawlessly without any human oversight or intervention? Why not take the human factor out of the equation? The technology theorist Kevin Kelly, commenting on the link between automation and pilot error, argued that the obvious solution is to develop an entirely autonomous autopilot: “Human pilots should not be flying planes in the long run.” The Silicon Valley venture capitalist Vinod Khosla recently suggested that health care will be much improved when medical software—which he has dubbed “Doctor Algorithm”—evolves from assisting primary-care physicians in making diagnoses to replacing the doctors entirely. The cure for imperfect automation is total automation."

The humans become the supervisors of the machines, but can they be ready to jump in if that is necessary/

Magnus Carlsen's Win in Chess WSJ.com

Magnus Carlsen's Win in Chess Championship Shows Powerful Role of Computers - WSJ.com: "The last chess match to get as much publicity as Mr. Carlsen's triumph was the 1997 contest between then-champion Garry Kasparov and International Business Machines Corp.'s Deep Blue computer in New York City. Some observers saw that battle as a historic test for human intelligence. The outcome could be seen as an "early indication of how well our species might maintain its identity, let alone its superiority, in the years and centuries to come," wrote Steven Levy in a Newsweek cover story titled "The Brain's Last Stand.""

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Felix Salmon - ETFs

Felix Salmon: demolishes the idea that not everyone can be passive.

"But the point at which passive investing becomes self-defeating is a bit like the point at which the gradient of the Laffer curve turns negative, and tax hikes cause revenue losses rather than revenue gains: both points are far beyond any state of the world that obtains in real-life America. Passive investors are still a minority of all stock-market investors — and, what’s more, they could easily become a majority without doing any harm to the markets’ price-discovery abilities. The only thing that matters is that there’s a reasonably large number of active marginal price-setters. Since there always will be a reasonably large number of active marginal price-setters, no one ever need fear that the rise of passive investing is going to become self-defeating."

and highlights the gains to be made from cheap and systematic investment.

Blame Rich, Overeducated Elites as Our Society Frays

Blame Rich, Overeducated Elites as Our Society Frays - Bloomberg: "A related sign is the overproduction of law degrees. From the mid-1970s to 2011, according to the American Bar Association, the number of lawyers tripled to 1.2 million from 400,000. Meanwhile, the population grew by only 45 percent. Economic Modeling Specialists Intl. recently estimated that twice as many law graduates pass the bar exam as there are job openings for them. In other words, every year U.S. law schools churn out about 25,000 “surplus” lawyers, many of whom are in debt. A large number of them go to law school with an ambition to enter politics someday."

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Antonio Fatas on the Global Economy: Saving glut or investment dearth?

Antonio Fatas on the Global Economy: Saving glut or investment dearth?:

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Premature evaluation: when local relationship banking attacks! | A Fistful Of Euros

Premature evaluation: when local relationship banking attacks! | A Fistful Of Euros: "Relationship banking is often seen as a good thing that we need more of, counterpoised to faceless trading-floor turbo-finance. But relationship banking was precisely what Anglo did. Anglo tended to keep clients for many years, to involve itself deeply in their businesses, and to go to extraordinary lengths to serve them. It would also take risks to win or retain them. Its unique selling point was that it would do anything to get your deal done, and it would do it quickly. They frequently closed property transactions up to a billion euros within the week. In exchange for this, its clients put up with interest rate spreads and fees that were much higher than its competitors’.

This raises a second point, which is that you know it’s a bubble when capital gains come in so fast that changing the interest rate is irrelevant.

"

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A Talk With Lars Peter Hansen, Nobel Laureate - NYTimes.com

A Talk With Lars Peter Hansen, Nobel Laureate - NYTimes.com: "Lars Peter Hansen, an economist at the University of Chicago, is one of three winners of this year’s Nobel Memorial Prize in Economic Science, along with Eugene F. Fama, a fellow professor at the University of Chicago, and Robert J. Shiller, a professor at Yale."

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House prices "bubbled" because Turgot's land beats Samuelson's "money"

Worthwhile Canadian Initiative: House prices "bubbled" because Turgot's land beats Samuelson's "money": "If I am right about this, the financial crisis was not caused by the bursting of a land bubble, because it wasn't a bubble. It was caused by the appearance of a "money" bubble. And the crisis will only end when Turgot's land once again replaces Samuelson's "money""

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Angry Bear » Rational Vs Adaptive Exectations

Angry Bear » Rational Vs Adaptive Exectations: "I note that the assumption of naive expectations leads to the belief that there will be irrational speculative bubbles in which agents assume some asset price will increase because it has in the past. This is one of they key features of the data. It is possible to reconcile this witih the rational expectations assumption, because anything at all can be reconciled with the assumption (note I never assert that the rational expectations hypothesis is false since we all agree that there is no falsifiable rational expectations hypothesis)."

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Poisson distribution and crisis

Create a model for financial crisis that is based on a Poisson distribution. The number of world financial shocks in a decade.  What is the distribution?  Does this change over time?  Use the Rogoff data.

Poisson distribution - Wikipedia, the free encyclopedia: "The distribution was first introduced by Siméon Denis Poisson (1781–1840) and published, together with his probability theory, in 1837 in his work Recherches sur la probabilité des jugements en matière criminelle et en matière civile (“Research on the Probability of Judgments in Criminal and Civil Matters”).[3] The work focused on certain random variables N that count, among other things, the number of discrete occurrences (sometimes called "events" or “arrivals”) that take place during a time-interval of given length. The result had been given previously by Abraham de Moivre (1711) in De Mensura Sortis seu; de Probabilitate Eventuum in Ludis a Casu Fortuito Pendentibus in Philosophical Transactions of the Royal Society, p. 219.[4]"

In this way there is a link to reliability engineering: what are the policy measures that make the system more or less stable?

There is a worked example on hurricanes here.

Wonga

Tim Harford:Swallow your contempt – Wonga is the symptom, not the problem - FT.com:

"No high-street bank comes close to this clarity, and an unauthorised overdraft may cost far more than the loan that prevents that overdraft. Outcompeted on convenience, on comprehensibility and perhaps even on price by the likes of Wonga, Britain’s banks should hang their heads in shame."

People who can borrow from conventional banks turn to Wonga because

1. It is easy to understand what you pay back
2. It is quick and impersonal
3. They do not trust banks

(Student Project will at bank) 

The siren call of Microsoft Excel - FT.com

The siren call of Microsoft Excel - FT.com: "“Reality is a crutch for people who can’t handle drugs,” proclaimed a sticker I once purchased in a suburban shopping centre. It fitted in perfectly with my collection of risqué buttons and key chains. As a teenager I had discovered accessorising was the easiest way to at least give the appearance of defying authority."

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Enron Emails and Central Bank policy

There are two posts here with Model Analysis of the Enron Email Corpus from Data and Analysis with R, for Fun (and Maybe Work!):   This could be useful to try to replicate with Bank of England MPC minutes or even the Fed or ECB press conference.

"Having only ever played with Latent Dirichlet Allocation using gensim in python, I was very interested to see a nice example of this kind of topic modelling in R.  Whenever I see a really cool analysis done, I get the urge to do it myself.  What better corpus to do topic modelling on than the Enron email dataset?!?!?  Let me tell you, this thing is a monster!  According to the website I got it from, it contains about 500k messages, coming from 151 mostly senior management users and is organized into user folders.  I didn’t want to accept everything into my analysis, so I made the decision that I would only look into messages contained within the “sent” or “sent items” folders."

'There are a number of possibilities:

1. Think about how the emphasis of monetary policy changes over time.  What is the effect of the financial crisis on one of more central banks. 
2. The effect that new members or a new hear has on policy. 
3. The common characteristics of central bank policy.  How does this tie in with co-movement of international assets? 

The Man Who Would Teach Machines to Think - James Somers - The Atlantic

Airplanes don’t flap their wings; why should computers think?:  Really interesting look at the development of AI and the latest thinking about the collaboration of man and machines.

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Inequality: Labour's share lost | The Economist

Inequality: Labour's share lost | The Economist:  What is behind the fall in labour share of income?

"Part of the decline, especially in Europe in the 1980s and 1990s, is attributable to labour-market liberalisation. Some of the decline, especially in America in the 2000s, can instead be attributed to exposure to imports from big emerging markets. But across the whole of the period and all countries (including emerging markets like China) technology seems to be the most important factor. Technology has gotten better and much cheaper over the past generation, and that has allowed firms to substitute capital for labour across a broad range of occupational categories. In the 1980s and 1990s technology had its greatest effect in production activities, in automation of routine physical tasks. From the 1990s on the impact of technology became more apparent in information-processing roles. Highly skilled workers mostly benefited from these technological shifts, as new technologies (especially in information and communication technology) have been complementary to their abilities. Owners of capital have also prospered. But middle-skill workers have done poorly, as have low-skill workers, thanks to increased competition from those displaced from middle-skill work"

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Economic history: Smith's word | The Economist

Economic history: Smith's word | The Economist:

"ADAM SMITH is known as the father of economics. Most people think of him as the archetypal free-marketeer. But Smith is often misquoted. This post will give a few examples of how people have misinterpreted Smith’s ideas—and show what he really meant.
Smith sowed the seeds of his own problems. He tended to write pithy soundbites that left his ideas open to distortion. One of his best-known quips:"

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Detecting an Unfair Die with Bayes’ Theorem | The Chemical Statistician

Detecting an Unfair Die with Bayes’ Theorem | The Chemical Statistician:

"An occasionally dishonest casino uses 2 types of dice.  Of its dice, 97% are fair but 3% are unfair, and a “five” comes up 35% of the time for these unfair dice.  If you pick a die randomly and roll it, how many “fives”  in a row would you need to see before it was most likely that you had picked an unfair die?”"

This is the same problem of identifying the correct regime that should use a Hidden Markov Model to detect which is the most likely.  This is the same problem that will seek to identify the state of the Minsky cycle by looking at the returns that are recorded in the carry trade.

Using Chaos Theory to Predict and Prevent Catastrophic 'Dragon King' Events - Wired Science

Using Chaos Theory to Predict and Prevent Catastrophic 'Dragon King' Events - Wired Science:

"Dragon king events may be freakish, but they are not freakishly rare. In fact they occur much more frequently than you would expect. Small fluctuations in the stock market happen all the time and very large ones rarely. But a dragon-king-type stock market drop would be one that was both extremely large and occurred somewhat regularly. It would be like seeing a once-in-a-century stock market crash every decade or so."

The dragon is an unusual animal as if the wealth of a king.  These outliers may be explained by the particular circumstances in chaotic systems that cause occasional, unusual activity.

"Even more interestingly, the researchers found that dragon king events displayed characteristic signals announcing their approach (they could only occur when the two circuits were on the “body” of the strange attractor butterfly). Knowing that a dragon king was coming, they could apply tiny perturbations to make sure the circuits stayed in sync. In essence, they could forecast the arrival of a catastrophic event and suppress it, prevent it from occurring".

The demise of Knight Capital

Python Sweetness on How to lose $172,222 a second for 45 minutes:

"How to lose $172,222 a second for 45 minutes This is probably the most painful bug report I’ve ever read, describing in glorious technicolor the steps leading to Knight Capital’s $465m trading loss due to a software bug that struck late last year, effectively bankrupting the company.  The tale has all the hallmarks of technical debt in a huge, unmaintained, bitrotten codebase (the bug itself due to code that hadn’t been used for 8 years), and a really poor, undisciplined devops story."

Crisis models of boom and bust

Vox asks Could an early warning system have predicted the crisis? | vox:

 "In a recent paper, we empirically model the cross-country incidence of the financial crisis (Rose and Spiegel 2009). Because the time-series component of an early warning system has proven harder to predict, we view the ability to predict relative performance in the cross section as a necessary, but not sufficient, condition for early warning models to be successful. We estimate a “MIMIC” (Multiple-Indicator Multiple Cause) model (Goldberger 1972), which we apply to a cross-sectional data set of 107 countries. The MIMIC specification explicitly acknowledges that the severity of a financial crisis is a continuous, rather than a discrete phenomenon, and one that can only be observed with error."

There is more work here and here that may be useful

This may be one way to look at the Minsky model and the bank lending model that will flow from it.

When did “How I Met Your Mother” become less legen.. wait for it… | Data and Analysis with R, for Work and Fun

When did “How I Met Your Mother” become less legen.. wait for it… | Data and Analysis with R, for Work and Fun:

"Enter IMDB average user ratings of every episode of How I Met Your Mother (until season 9, episode 5).  Once I brought up the page showing rated episodes by date, I simply copy and pasted the table into LibreOffice Calc, saved it as a csv, and then loaded it into R.  As you can see in DiffusePrioR’s post (and also in mine), the purpose of the changepoint package is to find changepoints, or abrupt baseline shifts, in your data."

Looking at the structural change in the data. This may be something that can be used in the regime-change paper.  At what point did things change?  What was happening then?

Why Microsoft Word must Die - Charlie's Diary

Monopoly power Why Microsoft Word must Die - Charlie's Diary:

 "I hate Microsoft Word. I want Microsoft Word to die. I hate Microsoft Word with a burning, fiery passion. I hate Microsoft Word the way Winston Smith hated Big Brother. Our reasons are, alarmingly, not dissimilar ..."

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UK house price

Lots from Joe's Data Diner: on UK house prices, including the link to the data.  This is something that can be used to assess the ratio of house prices to income and the question of whether this is a measure that can identify the points where the market is overvalued.

"There seems nothing the British press likes more than a good house price story. Both the OECD and 'The Economist' studies quoted in The Telegraph recently use the house price to household income ratio as a consideration of affordability and sustainability of the market. Most often this is a ratio of average house prices to average incomes; I keep wondering if this ratio is itself a function of income? What follows is a first (and not that rigorous!) look at this idea."

Do extremes tell us something about future prices?

Review: What Happened to Goldman Sachs - WSJ.com

Another look at how investment banks changed after the abandonment of partnership.  This is a book review that is behind a paywall.  However, the book may be worth the read.

Review: What Happened to Goldman Sachs - WSJ.com: "The year after Goldman Sachs went public in 1999, the investment bank threw a raucous party for clients at the Venetian Hotel on the Las Vegas Strip. Girls in high heels served candy and cigars while synchronized swimmers performed in the pool. Jay Leno was flown in for a private show. Traders bet tens of thousands of dollars on single hands of poker downstairs in the casino. It was one heck of a party. (Full disclosure: I attended as a rube analyst at the firm.)
It was also a very un-Goldman-like event. A private partnership since 1869, the bank had ..."

Poisson or Binomial distribution?

When to use the Poisson or Binomial distribution?:

"If a mean or average probability of an event happening per unit time/per page/per mile cycled etc., is given, and you are asked to calculate a probability of n events happening in a given time/number of pages/number of miles cycled, then the Poisson Distribution is used.

If, on the other hand, an exact probability of an event happening is given, or implied, in the question, and you are asked to calculate the probability of this event happening k times out of n, then the Binomial Distribution must be used."

(Adapted from this page).  Therefore, if there is on average 2 bank failures per month, what is the probability that there are no bank failures in a month?
Poission Distribution (lambda t) = (2 errors per page * 1 page) = 2.
Hence P0 = 2^0/0! * exp(-2) = 0.135

There are 20 banks in a state, the probability of one going bust is 0.1.  What is the probability of losing two banks?

Here it is binomial with n = 20.   Expand (q + p)^20
q^20 + 20 q^19 p + 20(20-1)/2! q^18 P^2  + ...

So P(2) = 20(20-1)/2! q^18 p^2 = 0.285.

Light sweet saturation and a malinvestment *alert* | FT Alphaville

FT Alphaville: The origin of the US oil 'glut'.

"In other words, oil prices were simply not high enough to justify energy investment during that period. The industry had to squeeze itself to make the investment case compelling enough to attract all that surplus capital. It was only when oil prices soared to 2008 record levels, that enough of the risk was removed to once again attract capital to the sector."

Understanding Society: Issues about microfoundations

An overview of microfoundations:

"A microfoundation is something like this: an account of the mechanisms at the individual actor level (and perhaps at levels intermediate between actors and the current level -- e.g. institutions) that work to create the structural and causal properties that we observe at the meso or macro level. A fully specified microfoundational account of a meso-level feature consists of an account that traces out (1) the features of the actors and (2) the characteristics of the action environment (including norms and institutions) which jointly lead to (3) the social pattern or causal power we are interested in. A microfoundation specifies the individual-level mechanisms that lead to the macro- or meso-level social fact. This is the kind of account that Thomas Schelling illustrates so well in Micromotives and Macrobehavior."

A contrast to the ideas of emergence, the belief that the sum is greater than the parts '

How traffic actually works

How traffic actually works: "At the risk of being helpful, here are some things YOU can do that are actually guaranteed to improve commute times for everyone:

Drive a shorter car.
Don’t let people merge in front of you, ever.
Don’t drive during rush hour.
Move to New York. Seriously, no one owns a car here. It’s great. I don’t even know why I’m writing this.
Bye!"

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Millisecond data disputes, part 2.0000000100 | FT Alphaville

FT Alphaville, overview of the dissemination debate:

"Does ‘other dissemination’ mean that the decision can be sent to other internal servers run by news organisations? That seems to be the key question, and we suspect there will be more clarity coming on the matter now that this episode has received so much attention.
In any case, it seems that a broader discussion needs to be had about how markets have evolved, and about how their evolution affects the release of public and private data to the market."

Background and information about the question of whether news agencies have been releasing news about Fed decisions from New York or from New York AND Chicago.

Scott E.D. Skyrm » 10 Events That Changed The Repo Market

Scott E.D. Skyrm » 10 Events That Changed The Repo Market:

The history of repo

Hedge funds becoming more interested in repo.

Link to FT article.

What I saw as a Wall Street trader

What I saw as a Wall Street trader: a culture of bad behaviour | Business  The most interesting is the way that the investment banking partnerships turned into monsters owned by a disparate range of diversified funds with little interest in the minutia of what is going on.

"In my final years many of my last trades were approved by – well, I don't really know what they looked like, since most conversations were held over the phone. Sometimes it would be a gentleman with an Indian accent. Sometimes it was a nervous-sounding man in a satellite office somewhere. For six sweet months it was nobody: I had fallen between administrative cracks in a reshuffle. I set my own limits for trades.

Now each person is a small cog in the larger whole but there is no ownership or responsibility.

Saltation level and Avalanche

Saltation layer in avalanche adds weight and momentum to the avalanche models. This layer is from the Latin "saltus" meaning "leap".  Solids are picked up by the flow and transported forwards.  The solid objects are pulled off the ground level and become part of the fluid.  This adds to the mass and increases the power.