There is a Yale University survey which finds that the more people know about the climate, the more skeptical they become. They sampled 1,540 people on the following different types of information: how much scientific literacy they possessed (e.g., how well they answered questions about things like the time it takes for the Earth to circle the sun and the relative sizes of electrons and atoms), how numerate they were (e.g., their ability to engage in mathematical reasoning), what their cultural values were, and their thoughts on the risks of global warming and nuclear power. Overall, the more knowledge lowered the global warming concern (p-value around 6%).
The cultural value groupings were 'individualism and hierarchy' who believe industry and technology have low risk and restricting gun ownership is bad, vs. 'egalitarian and communitarian', who believe industry and technology have a high risk and restricting gun ownership is good. I'm clearly a 'individualism-hierarchy' guy on that score, and can see why it dominated the explanation of the results, because if you are afraid of industry and technology, you probably love the Global Warming solutions to regulate technology and industry more. It would have been better to merely ask if they were Democrats or Republicans, because that would be less obviously correlated with the survey on nuclear power and global warming.
Chris Mooney in DeSmogBlog has a post on this paper that neglects the overall correlation on knowledge and climate worry. He didn't mention that for both groups more knowledge was significantly associated with lower nuclear risk concern, or that for the 'individualism-hierarchy' group more knowledge was significantly different than zero. Most importantly, he neglected to note that the 'higher knowledge-higher global warming' correlation within the those +1 standard deviation in the 'egalitarian and communitarian' camp was not statistically different than zero (I'm eyeballing it at around 12% p-value, these are psychologists so they do numbers reluctantly, it seems). Mooney is a professional pundit who lectures everyone on how to do science, which I guess involves ignoring standard errors and burying the lede when it hurts your point.
As Chris Mooney wrote The Republican War on Science, this is contrary to his thesis that we had more scientific candidates we would all agree with the progressive agenda to eliminate a missile defense system, not mention risks of abortions, and fight global warming (presumably with ethanol subsidies and bans on nuclear power). So he spun the survey to focus on the fact that the disagreement polarized the hierarchical-individualists and communitarian-egalitarians alone, and concludes that 'a little knowledge is a dangerous thing'. Yes, Mr. tendentious English major without an understanding of standard errors, it is.
Thursday, June 30, 2011
The Advisor Weblog
The Advisor Weblog |
| Posted: 30 Jun 2011 04:47 AM PDT Hi everyone! Last day o the month and the dollar can't find relief yet on contrary, sinks further. Usually profit taking last day of the month sees movements against dominant trend, more when we are closing first half of 2011. Still only currency showing weakness against dollar is the poor Pound, still weighted by latest BOE Minutes.
http://www.fxstreet.com/fundamental/economic-calendar/
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Wednesday, June 29, 2011
The Advisor Weblog
The Advisor Weblog |
| Best pair to trade now: USDCHF Posted: 29 Jun 2011 03:38 AM PDT Swiss Franc is no doubts, the strongest currency across the board. Quoting at record highs against the dollar there are no signs of exhaustion or reversal in the long term, yet on contrary, daily indicators point for further slides:
However, and in the short term, pair may show some interesting movements today after the Greece vote (AUD/USD will be the other choice today). Here is the USD/CHF short term outlook for today:
http://www.fxstreet.com/technical/forex-strategy/the-best-pair-to-trade-now/2011/06/29/
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| Posted: 29 Jun 2011 02:59 AM PDT Hi everyone! So the day has come! Today Greek Parliament will decide either to pass or not latest austerity measures. As far as I know will start at 12 GMT, yet how long will it last, not sure. Market will probably stay on hold waiting for the result. As you may know risk appetite/aversion has ruled the market based upon sovereign debt woes in the euro zone, and headlines regarding the bailout coming from the EU and the IMF: how much, when, how, why, etc, etc.
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Spending, the Cause and Solution of all Government's Problems
Unfortunately, unlike Homer Simpson's beer insight, this isn't considered ambiguously by one person, but rather, differently by opposite wings of our political spectrum. Obama is commenting on some budget wrangling, and addressed the simultaneous desire to cut the debt and increase spending:
He is arguing we should spend to reduce our debt because of effects on future growth rates. This is all from the magic of the multiplier, where investments that would be wasteful in the private sector have a positive NPV in the public sector. This makes sense to most modern macroeconomists and they provide the intellectual cover for those who don't understand it but want it to be true. Economists have changed Adam Smith's dictum 'what is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom' to 'what is foolish for a family is wise for our government.'
I regret wasting time learning the formal casuistry that rationalizes the pedestrian and perennial desire to increase redistribution and federal power under the pretext of increasing growth. I know it's a defensible statement, not logically impossible just contingent on some heroic assumptions, but when you look at how our money is actually spent, empirically absurd: defense spending, K-12 education, ethanol, light rail, Medicare, all boondoggles that have made things worse via their top down direction. Meanwhile, Japan cleans up its disasters much more efficiently than the US would have (see Katrina), and where in 1931 the US could build the Empire State Building in 400 days, the World Trade Center is at 10 years and counting. At this rate we are declining much faster than when Egypt built the monumental pyramids at Giza around 2600 BC, then the pathetic Unas 300 years later (my grandkids will probably think the Hoover dam was made by alien astronauts).
Obama's basically has the same homunculus in his head he had in 1994 while criticizing the infamous Bell Curve on NPR, when in one of his few public comments made before becoming a professional narcissist, he made the familiar call to more spending:
As Lao-Tsu said, 'at the center of your being you have the answer; you know what you want'. The rest, is formal education.
Deficit reduction, debt reduction should be part of an overall package for job growth over the long term. It is not the only part of it, but it is an important part of it...If there are steps in the short term [that] may reduce the amount of cash in the treasury but in the long term mean we are growing at 3.5 percent instead of 2.5 percent, then those ideas are worth exploring,
He is arguing we should spend to reduce our debt because of effects on future growth rates. This is all from the magic of the multiplier, where investments that would be wasteful in the private sector have a positive NPV in the public sector. This makes sense to most modern macroeconomists and they provide the intellectual cover for those who don't understand it but want it to be true. Economists have changed Adam Smith's dictum 'what is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom' to 'what is foolish for a family is wise for our government.'
I regret wasting time learning the formal casuistry that rationalizes the pedestrian and perennial desire to increase redistribution and federal power under the pretext of increasing growth. I know it's a defensible statement, not logically impossible just contingent on some heroic assumptions, but when you look at how our money is actually spent, empirically absurd: defense spending, K-12 education, ethanol, light rail, Medicare, all boondoggles that have made things worse via their top down direction. Meanwhile, Japan cleans up its disasters much more efficiently than the US would have (see Katrina), and where in 1931 the US could build the Empire State Building in 400 days, the World Trade Center is at 10 years and counting. At this rate we are declining much faster than when Egypt built the monumental pyramids at Giza around 2600 BC, then the pathetic Unas 300 years later (my grandkids will probably think the Hoover dam was made by alien astronauts).
Obama's basically has the same homunculus in his head he had in 1994 while criticizing the infamous Bell Curve on NPR, when in one of his few public comments made before becoming a professional narcissist, he made the familiar call to more spending:
Real opportunity would mean quality prenatal care for all women and well-funded and innovative public schools for all children. Real opportunity would mean a job at a living wage for everyone who was willing to work, jobs that can return some structure and dignity to people's lives and give inner-city children something more than a basketball rim to shoot for. In the short run, such ladders of opportunity are going to cost more, not less, than either welfare or affirmative action. But, in the long run, our investment should payoff handsomely. That we fail to make this investment is just plain stupid.
As Lao-Tsu said, 'at the center of your being you have the answer; you know what you want'. The rest, is formal education.
Tuesday, June 28, 2011
The Advisor Weblog
The Advisor Weblog |
| Beginners' Corner latest video Posted: 28 Jun 2011 06:53 AM PDT Here is the Beginners' Corner latest video, regarding moving averages, with some trading tips you may enjoy:
http://www.fxstreet.com/webinars/sessions/session.aspx?id=8162e219-4cac-44b8-af73-40efbd46b11e
We will continue this next Friday, with more technical indicators and tips and tricks beyond books; you can register here:
http://www.fxstreet.com/webinars/sessions/session.aspx?id=1b7bca5f-1d67-40ae-969d-6614b16fdad0
Hope to see you all there!
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| Ranges, lack of definition...SUMMER! Posted: 28 Jun 2011 05:42 AM PDT Majors had been up and down since the start of the week, with no much of a longer term definition, despite dollar highs. Ther is something of bipolar behaviour lately when it comes to market sentiment, as risk aversion switchs no risk appetite back and foward, sometimes more than a couple times a session. Still, is not that easy as blaming it on summer: investors are running out of safe havens, and my bet goes for gold, and a recovery there, as when it comes to currency, record highs in yen and chf are making those two less attractive than usual, while USD has lost its charm long ago.
Anyway! I still see GBP/USD pretty weak, limited below 1.6020 for now, tops the 1.6060/80 strong static resistance zone. Downside is open for a test of 1.5770 still this week. Short term supports come at 1.5960, 1.5920 and 1.5880.
Regarding Euro, here are the technical details for today: http://www.fxstreet.com/technical/forex-strategy/the-best-pair-to-trade-now/2011/06/28/
Have a great trading day!
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Negative SPX/VIX Correlation and Fu Result
Above is a chart of the monthly percent change for the VIX, an index approximately equal to the option volatility on the S&P500, and the return on the S&P500 itself. There's a clear negative pattern. This makes sense, and volatility increases when the market is falling and vice versa. If I told you the VIX, or its ETF the VXX, was up big, there's a strong chance the SPY was down big.
Move the date forward, however, so it's past volatility change and future return, and there's no correlation, and there's a slight negative correlation between volatility levels and stock returns. So, it seems mainly a contemporaneous pattern applied to changes in volatility, spilled milk as opposed to a predictor. Think about when volatility was rising in 2008, and prices were falling simultaneously. The rise in volatility was not predicting price moves, just reflecting them, and the high volatility correlated with both the big move down and the big rebound in the latter part of 2009.
Fangjian Fu has a well-cited paper in the 2009 JFE, Idiosyncratic Risk and the Cross-Section of Expected Stock Returns, that purports to show that contrary to earlier reports that idiosyncratic volatility and future returns are negatively correlated, they are actually positively related. He states that if you estimate idiosyncratic volatility using an EGARCH model, you reverse the results of Ang et al, and find a positive 1.75% return each month for the highest minus lowest idiosyncratic volatility deciles, which is basically flat except for a big jump upward in the highest expected volatility decile.
I've looked at this enough to believe he's made a mistake, but I don't know what, exactly. I don't see this in the data, and I doubt his specific EGARCH would change that, but it's difficult to recreate his methodology exactly. I presume it is in some sort of selection bias in his sample. He states that 'stocks with high idiosyncratic volatilities are contemporaneous with high returns, which tend to reverse in the following month. As a result, the returns of high-IVOL stocks are abnormally low in the next month', a finding I find bizarre because it's contrary to the pattern above, which hold not just for indices but stocks as well.
But, this is good news for low volatility traders. As long as the old guard can point to proof that their result is still viable, they will believe it, and that leaves more opportunity for those who see through this. To paraphrase Cicero, the function of wisdom is to discriminate between good and bad investments.
Monday, June 27, 2011
Bob Seger Vindicated
I always found the line 'wish I didn't know now what I didn't know then' to be mystically profound (from Against the Wind), but had trouble of thinking of anything I could apply it to. Not knowing Santa was my dad? That an anthropomorphic god doesn't exist? That the sun will run out of fuel? Nothing seemed to fit.
But today I read about 77 year old Brady Bunch mom Florence Henderson getting crabs from a one night stand with then NYC mayor John Lindsey.
when she went home later that night, she woke up to "little black things" covering her body. She says she called her doctor who told her she had pubic lice.
I didn't need to know that.
Sunday, June 26, 2011
Overnight Stock Returns
Below are the annual logarithmic average and standard deviation of returns to some common stocks, and two primary ETFs, SPY and QQQ (percent returns look similar). I used as much data as every stock had, where IBM goes back to 1962, but QQQ starts in 1999. As you can see, the average returns for every stock except MSFT was significantly greater overnight than from open to close. In fact, on average, stocks had a negative return during trading hours, even though 2/3 of the 'risk' is intraday. This is yet another instance of how the theory that risk begets return is contradicted by reality.
Tom Anichini has found this in several ETFs, see here.
Start Date | Ticker | Open-Close | Close-Open | stdev(O-C) | stdev(C-O) |
1999 | QQQ | -13% | 14% | 29% | 16% |
1993 | SPY | -3% | 10% | 17% | 10% |
1984 | AAPL | -13% | 30% | 41% | 29% |
2008 | TNA | 3% | 43% | 78% | 46% |
1986 | YRCW | -25% | -1% | 61% | 30% |
1986 | MSFT | 12% | 10% | 32% | 21% |
1962 | IBM | 2% | 6% | 22% | 12% |
Avg. | -5% | 16% | 40% | 23% |
Tom Anichini has found this in several ETFs, see here.
Friday, June 24, 2011
Keynesian Macro Logic
Brad DeLong has this plea today:
Build stuff? What percent of government expenditures at the margin, become 'stuff'? With a deficit of $1.4 Trillion, spending approved but not yet spent is not like some untapped reserve.
Spending other people's money on other people has a really bad ROE, highlighted by the total indifference to important issues like how money is invested. I would love to be this guy's broker! Consider how hard it is to manage an infrastructure project of say, $10MM. To think that one can, top down, spend $50B and create value anywhere near $50B highlights a total indifference to incentives and a reliance on macro aggregates (C, I, G, M, v etc) that have proven as useful as Marxist conceptions of capital and labor: fun to talk about, but ultimately meaningless.
the U.S. Treasury has not taken the $50 billion of TARP money it is not using for housing--and another $100 billion or so of TARP money--and said: "Here is the equity tranche for a U.S. government-backed infrastructure bank. Go out and build stuff!"?
Build stuff? What percent of government expenditures at the margin, become 'stuff'? With a deficit of $1.4 Trillion, spending approved but not yet spent is not like some untapped reserve.
Spending other people's money on other people has a really bad ROE, highlighted by the total indifference to important issues like how money is invested. I would love to be this guy's broker! Consider how hard it is to manage an infrastructure project of say, $10MM. To think that one can, top down, spend $50B and create value anywhere near $50B highlights a total indifference to incentives and a reliance on macro aggregates (C, I, G, M, v etc) that have proven as useful as Marxist conceptions of capital and labor: fun to talk about, but ultimately meaningless.
Thursday, June 23, 2011
Economists Not Only Bad Forecasters
This Bloggingheads clip highlights that the space program has been very disappointing. I remember all the accolades for astronauts and our space program as this was not only dangerous and difficult, but supposedly really important. It would supposedly help us manufacture drugs, create moon colonies, etc. The whole manned space flight program since Apollo has been a failure, producing absolutely zero new scientific theories or data.
In announcing the first rough draft of the human 'book of life' at a White House ceremony in the summer of 2000, President Bill Clinton predicted that the genome project would 'revolutionize the diagnosis, prevention and treatment of most, if not all, human diseases.' That hasn't happened, and is doubtful.
I think this highlights the problems predicting the future in anything, from dividends, to science, to politics. It's easy with hindsight to see how irrational past beliefs were, and it would be interesting to know how much of conventional wisdom was held by people who had a lot of common sense. I have a suspicion the seemingly bad predictions were from the media, which is populated by journalists, who as a class I find rather ignorant (when I was a TA at Northwestern which has a 'good' journalism school, we had big intro classes and they listed the colleges the kids were from, and they always followed the same g-loaded order: Engineering, Arts and Science, Journalism).
In announcing the first rough draft of the human 'book of life' at a White House ceremony in the summer of 2000, President Bill Clinton predicted that the genome project would 'revolutionize the diagnosis, prevention and treatment of most, if not all, human diseases.' That hasn't happened, and is doubtful.
I think this highlights the problems predicting the future in anything, from dividends, to science, to politics. It's easy with hindsight to see how irrational past beliefs were, and it would be interesting to know how much of conventional wisdom was held by people who had a lot of common sense. I have a suspicion the seemingly bad predictions were from the media, which is populated by journalists, who as a class I find rather ignorant (when I was a TA at Northwestern which has a 'good' journalism school, we had big intro classes and they listed the colleges the kids were from, and they always followed the same g-loaded order: Engineering, Arts and Science, Journalism).
The Advisor Weblog
The Advisor Weblog |
| Dollar gains extend; Pound may suffer more Posted: 23 Jun 2011 05:00 AM PDT Hi everyone! Dollar started a bullish rally past American afternoon that even moved USD/JPY 30 pips higher and that's a lot to say. While investors had already priced in QE3,Bernanke stated as usual that the pace of unemployment decline is frustratingly slow, yet he also played down QE3 comparing current economic developing with the one 1 year ago.
Stocks and commodities not just halted recent gains yet also reversed lower, strongly down in the day and giving dollar further support. Dollar approaches fast to recent highs against major rivals, and I would say that above those, we can start talking about a longer term reverse. One thing is however, making me doubt: we are in summer, we know summer equal ranges, and we know that we hardly have trend definitions in this time of the year. But well, nothing is 100% in forex,, and there is always a first time for everything ;)
I would expect also Pound to suffer the most these days, more if the pair remains under pressure and lose the 1.5920 area, recent daily lows. Daily chart is strongly bearish as you can see, and in that case, 1.54/55 comes at sight for next week.
Short term view, can be found here:
http://www.fxstreet.com/technical/forex-strategy/the-best-pair-to-trade-now/2011/06/23/
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Wednesday, June 22, 2011
The Advisor Weblog
The Advisor Weblog |
| Dollar under pressure, Euro strong Posted: 22 Jun 2011 06:47 AM PDT Dollar remains strongly down across the board, I would say gold above $ 1550/oz is among the reasons. Strong stocks after recent US opening, seems to be also favoring risk appetite, and even the Pound is managing a rebound from daily low @ 1.6090.
Here is the major's hourly outlook for current American session:
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| Posted: 22 Jun 2011 04:12 AM PDT Watching the daily chart, there is no much more to recent rally to the upside, than a correction of the long term bearish trend the cross is in. Daily chart shows indicators pretty bearish, and the upside capped by 200 EMA; I believe that only IF we overcome parity, we can talk about a bottom and a long term reversal in the cross.
Intraday view however, seems bit more bullish as oil continues pressured below $ 100 a barrel, and stocks are mostly negative today. Here is the short term technical outlook: http://www.fxstreet.com/technical/forex-strategy/the-best-pair-to-trade-now/2011/06/22/
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| Posted: 22 Jun 2011 02:49 AM PDT Hi everyone! Good mood seen yesterday in markets seems to be fading as at this time of the European morning, stocks and commodities struggle around the opening levels, showing no much aims to extend gains.
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Humans Born Capitalists
Bastiat noted that "Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place." von Mises and Hayek championed this insight to note how private property was essential to economic efficiency via its decentralizing nature, and Hernando de Soto applied this to problems in the third world.
While the NYTimes likes to put scare quotes around 'property rights' when discussing eminent domain as if it's some newfangled right wing obsession, the following following psychology experiment suggests it's human nature:
Rather than being learned from parents, a concept of property rights may automatically grow out of 2- to 3-year-olds’ ideas about bodily rights, such as assuming that another person can’t touch or control one’s body for no reason, Friedman proposed.
...
Friedman’s team presented a simple quandary to 40 preschoolers, ages 4 and 5, and to 44 adults. Participants saw an image of a cartoon boy holding a crayon who appeared above the word “user” and a cartoon girl who appeared above the word “owner.” After hearing from an experimenter that the girl wanted her crayon back, volunteers were asked to rule on which cartoon child should get the prized object.
About 75 percent of 4- and 5-year-olds decided in favor of the owner, versus about 20 percent of adults.
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