Virtual firms

David Morris – Aeon speaks about virtual firms:

"Imagine, for instance, a bike-rental system administered by a DAC hosted across hundreds or thousands of different computers in its home city. The DAC would handle the day-to-day management of bikes and payments, following parameters laid down by a group of founders. Those hosting the management programme would be paid in the system’s own cryptocurrency – let’s call it BikeCoin. That currency could be used to rent bikes – in fact, it would be required to, and would derive its value on exchanges such as BitShares from the demand for local bike rentals."

The firms manage themselves and optimise their performance.  I need to understand more about biitcoin to understand this. This is the management in bunny slippers.

“Microfoundations” ain’t so microfounded

Bull Market and microfoundations:  fundamental right but does he miss the fact that these are supposed to be simplifying models?  The multiple layers of agency may be impossible to model.  Then you are left with a story.

 "And that tractable composite of all the principal and agent problems in the whole economy — what’s it going to look like? Well, it’s going to look like an “animal spirits”, from a classic Keynesian model, or one of Roger Farmer’s. We know that all the different levels of game theory interactions do sort of work out in the real economy, because investment behaviour does take place. But we also know that they’re subject to fairly wide swings and overreactions."

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The eurozone: A strained bond - FT.com

The eurozone: A strained bond - FT.com: The opposition to ECB policy in Germany.

"The German media are likely to be hostile. Commentators tend to criticise the ECB, sometimes virulently, with the financial weekly WirtschaftsWoche condemning low interest rates as a “diktat from a new Banca d’Italia, based in Frankfurt” — a reference to Mr Draghi’s Italian citizenship.
An ECB charm offensive has seen the usually media-shy president give interviews to German media. But PR will not win the day just yet. Marcel Fratzscher, head of the DIW think-tank and a former ECB official, says: “ A big majority of economists and journalists won’t like [QE]. Very few will support it.”"

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Background on technical analysis and technical trading

Scan for chart patterns software - Quantitative Finance Stack Exchange:

"Is there any software out there that currently would allow you to scan historical charts and look for a specific pattern and then show you that pattern for a list of stocks. Google finance and yahoo finance have all the charting data needed to visually detect certain patterns, but I was wondering if there was software out that I could define a particular pattern and then it would show me a bunch of real world examples of that pattern by scanning a dump of symbols. Does any such software exist or something to do something similar to this? I actually have a custom pattern I want to scan (that or I do not yet know the name of it) Not really sure how to word this but I am thinking of having it scan the recent behavior of a stock and then to scan a list of symbols for that pattern but historically back in time, not the present."

There are a lot of links to web sites, blogs and papers that will seek to find some quantitative trading techniques.

Heat Death: Venture Capital in the 1980s

Heat Death: Venture Capital in the 1980s: The importance of credit.



"The history repeats itself crowd thinks that that there must be a bubble sooner or later. “Now?” they constantly ask, “Is it a bubble now?” as if history has to repeat whatever was most memorable about the last time. History may repeat itself, but there’s an awful lot of history that this particular venture capital cycle could repeat. Below is a short history of venture capital in the 1980s, my interpretation and comparison to the ’90s and today, and some thoughts about what that means. It’s long. If you’re attention-deprived, skip to ‘1980s v. 1990s’, about four-fifths of the way down."



Inflation is always and everywhere a monetary phenomenon.  Not  just in the price of goods and services but also in assets.  This also affects the performance of financial services companies.  With more credits, the companies have an easier time.   Venture capital and private equity are a big beneficiary of that.

Uncertainty and disagreement

Liberty Street Economics (US Fed research blog) examines the difference between uncertainty and disagreement.

"Uncertainty is of considerable interest for understanding the behavior of individuals as well as the movements in key macroeconomic and financial variables. Despite its importance, direct measures of uncertainty aren’t widely available. Because of this data limitation, a common practice is to use survey-based measures of forecast dispersion—reflecting disagreement among respondents—to proxy for uncertainty. Is this a reliable practice? Here, we review the distinction between disagreement and uncertainty as concepts, and show that this conceptual distinction carries over to their empirical counterparts, suggesting that disagreement is not generally a good proxy for uncertainty. "

Financial Innovation and Risk Management

An overview of Shiller and his ideas about the way that financial innovation can be extended into fields that will help to manage and control risk.  Financial Innovation and Risk Management — Money, Banking and Financial Markets:

"Another example regards mechanisms to manage exposure to systematic income fluctuations at the aggregate level: Kamstra and Shiller have proposed that governments issue “trills” – a perpetual security with an annual coupon that pays one-trillionth of nominal GDP. For example, in the United States, that coupon would have been set at $17.60 as of the third quarter of 2014. In theory, when income growth is strong, government can afford higher coupon payments, while lower coupons would cushion the fiscal balance when the economy falters. At the same time, owning a trill would allow pension managers both to protect their clients against inflation and to benefit from the economy’s long-term growth – including the gains in both wages and profits. And, if many governments were to issue trills – with coupons related to their national GDP – savers could easily form a globally diversified investment portfolio, providing a cheap hedge against the idiosyncratic income risks of their domestic economy. So far, however, no government has issued a trill."

Useful for the ways that it can focus the discussion of the role of the financial system.



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Statisticians in World War II: They also served | The Economist

Statisticians in World War II: They also served | The Economist: "“Peace finally returned, and the statistical scene in the United Kingdom had been completely transformed,” wrote Barnard and Plackett. “No other method would have produced these changes in only six years.” Dozens of clever young people had been taught a fast-changing new subject—and in many cases done original research. Even routine work was elevated by the urgency and camaraderie of the war effort—and even the fact that they were new to the field. “A lot of the work was statistically boring,” Sir David says now. “But the point is that I didn’t really know anything.”"



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Piketty’s (unintended) advice for investors | Gavyn Davies

Piketty’s (unintended) advice for investors | Gavyn Davies: "Finally, though, let us circle back to the real rate of return on capital. Can it really stay indefinitely about 4 per cent, as Prof Piketty suggests, at a time when central banks are setting interest rates at zero, and when the growth rate, g, is slowing down? Boiled right down, he himself says that this is his central claim. But in modern textbook economic models, while the rate of return on capital can remain higher than g in the long term, it is likely to decline when g declines."



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Make policy for real, not ideal, humans - FT.com

Make policy for real, not ideal, humans - FT.com: "
ut of the crooked timber of humanity, no straight thing was ever made. This famous remark of the German philosopher, Immanuel Kant, is particularly relevant to economists. “Homo economicus” is far-sighted, rational and self-interested. Real human beings are none of these things. We are bundles of emotions, not calculating machines. This matters."



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My reading of the FT on China’s “turning away from the dollar” | Michael Pettis' CHINA FINANCIAL MARKETS

Michael Pettis' CHINA FINANCIAL MARKETS:  Michael, assesses the gloom and doom about changes in Chinese international capital flows.

"The authors provide the views of several analysts concerning the impact on the US bond markets and US economy more generally of reduced PBoC purchases of US government bonds, and these views range from neutral to very negative. I would argue however that in fact these views fail to understand the systemic nature of the balance of payments, in which any country’s internal imbalances must necessarily be consistent with its external imbalances. They assume implicitly assume that PBoC purchases only affect the demand for US government bonds, whereas in fact the flow of capital from one country to another must automatically affect both demand and supply. In fact the impact of reduced PBoC purchases of US government bonds is likely to be net positive, and while this view is probably counterintuitive, and certainly controversial, in another part of the article the authors cite a Chinese official whose statement, had they explored the implications fully, would have explained why."

Chinese current account surplus means a capital outflow.  As Michael indicates, the evidence from other major periods of capital flows:  US in the 1920s and 1950s, OPEC in 1970s, Japan in the 1980s, to which could be added UK in 1880s; suggests that it is not all beneficial to the exporter of capital.  Investment is difficult, mistakes are made. There are no many suppliers of safe, liquid assets.

At last the con has been taken out of econometrics

Tim Harford — Article — At last the con has been taken out of econometrics: "In 1983, Edward Leamer published an article with contents that would become almost as celebrated as its title. “Let’s Take the Con Out of Econometrics” began with an analogy that remains useful. Imagine an agricultural researcher who tests the effectiveness of a new fertiliser by dividing land into strips and spreading the new fertiliser only on a randomly chosen selection of those strips. Because of the randomisation, any effect will presumably be thanks to the fertiliser."



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U.S. Investment in Global Bonds: As the Fed Pushes, Some EMEs Pull

U.S. Investment in Global Bonds: As the Fed Pushes, Some EMEs Pull:  An analysis of the flow into EM bond markets.

"We analyze reallocations within the international bond portfolios of US investors. The most striking empirical observation is a steady increase in US investors' allocations toward emerging market local currency bonds, unabated by the global financial crisis and accelerating in the post-crisis period. Part of the increase in EME allocations is associated with global "push" factors such as low US long-term interest rates and unconventional monetary policy as well as subdued risk aversion/expected volatility. But also evident is investor differentiation among EMEs, with the largest reallocations going to those EMEs with strong macroeconomic fundamentals such as more positive current account balances, less volatile inflation, and stronger economic growth. We also provide a descriptive analysis of global bond markets' structure and returns."

You Want a Bigger Paycheck? Convince Me. - Bloomberg View

You Want a Bigger Paycheck? Convince Me. - Bloomberg View: "This last fact -- the increase in capital’s share of the national pie -- is really the big mystery. Why has it happened? There are two basic competing theses: the rise of the robots and the great labor dump."



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Automation Makes Us Dumb - WSJ

Automation Makes Us Dumb - WSJ: The limits and limitations of automation.

"When system designers begin a project, they first consider the capabilities of computers, with an eye toward delegating as much of the work as possible to the software. The human operator is assigned whatever is left over, which usually consists of relatively passive chores such as entering data, following templates and monitoring displays."

Finding a new role for the human.

The truth about UK living standards since the crisis - FT.com

The truth about UK living standards since the crisis - FT.com:



An analysis of UK income statistics.

"Come next year’s UK election, bread and butter issues of living standards will displace Europe and immigration from the top of the public debate. The problem is that there are so many different comparisons and data sources that many contradictory claims are true. Few will be both true and fair. Here, then, is a guide to British living standards since the crisis, which avoids cherry-picking data and the cop out of saying that results are all too uncertain and complicated to conclude anything"

One additional area of interest is the contrast between the UK, the US and the Euro area.  The UK has had a fall in real wages and relatively healthy employment growth. For the US, though the economy has been stronger overall, employment and wages have been higher.  I need to look at the Euro area to complete the picture.

Document classes for La Tex

document classes - What are the available "documentclass" types and their uses? - TeX - LaTeX Stack Exchange:

Link to stackexchange discussion of documents in la tex.

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Self-opinion and forecasting

Why we are unaware that we lack the skill to tell how unskilled and unaware we are:

"Dunning and Ehrlinger knew that most college students tend to hold very high opinions of themselves when it comes to abstract reasoning. It’s part of what they call a “chronic self view.” You have an idea of who you are in your mind, and it is kind of like a character in a story, the protagonist in the tale of your life. Some aspects of that character are chronic, traits that are always there that you feel are essential and evident, beliefs about your level of skill that are consistent across all situations. For most college students, being great at abstract reasoning is one of those traits, but being great at computer programming is not."

There is an experiment here that can be conducted with economic or financial forecasting.  How well do people forecast and how accurate do they think that they will be?

Oranges and lemons — the FX scandal in perspective — Bull Market — Medium

The WM benchmark fix.  Oranges and lemons — the FX scandal in perspective — Bull Market — Medium:

"The FX settlement was announced this week, prompting a lot of editorialising about how the banks Don’t Get It, and Are Systematically Corrupt and so on. To an extent this is the default position post LIBOR, post CDO and rightly so. But I think there’s a danger in viewing everything through the prism of previous scandals. Although there was some behaviour that was clearly on the other side of the line, the regulators also made clear that lots of the practices involved were not intrinsically criminal; this was an investigation into a grey area, not a straightforward case of lying. Of course, the industry has less than zero claim to the benefit of anyone’s doubt, and people will be instantly suspicious of claims that “it’s more complicated than that”, so maybe I can explain what went on in the FX market through the medium of a series of examples, all based on someone going down to market to buy oranges."

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Trading as gambling

Management Science: INFORMS: "This paper offers evidence from three different samples consistent with investors substituting between playing the lottery and gambling in financial markets. In the United States, increases in the jackpots of the multistate lotteries Powerball and Mega Millions are associated with significant reductions in small trade participation in the stock market. California-based discount brokerage clients and German discount brokerage clients are significantly less likely to trade during weeks with larger lottery prizes in the California and German lotteries, respectively. Variation in lottery prizes affects speculative trading in more lottery-like securities such as individual stocks and options, but not trading in bonds and mutual funds. Trading that is likely associated with long-term savings motives, such as trading in retirement accounts, does not respond to lottery jackpots, either. The negative relation between trading activity and jackpots is stronger for individuals who are more likely to play the lottery."



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