Here are the less-timely articles from the past week or so. I have combined the Economics-links to this post - except most ones on Europe, which appear in the previous post. You can get
update notifications by following MoreLiver on Twitter or Facebook. Contact me with any questions or
suggestions!
GENERAL
The Weekly T Report: BJ and the Bear – TF
Market Advisors
So what, when, where, and how will the CB’s and
governments intervene?
to infinity and beyond – The
Research Puzzle
Investments are made not just on their merits,
but in comparison to the crowd of investors against which you compete and the
benchmark against which you are measured.
Your Self-Inflicted 6% Trading Tax – The
Psy-Fi Blog
We’ve already looked at the gross amount of
money we conspire to lose each year – something in the region of $160 billion a
year in the US alone (see: The 160 Billion Dollar Bezzle). Now a UK writer has looked at
what this means for us as individuals.
The answer is, very roughly, a cost of 6% a year.
ASSET CLASS VIEWS
The Market Equilibrium Puzzle – Macro
and Cheese
What is the stock market worth, and what will
it be worth going forward? As a
reference point, let's compare the S&P 500 today with its value back at the
high, in 2007.
Trouble In Stocks, Focus On Commodities – The
Short Side of The Long
We are in a "Late Expansion" of the
investment cycle. I think there are cracks starting to show within the equity
market, despite its potential to make new bull market highs above 1,420 in
coming weeks.
What Do Metal Prices Tell Us About The Future
Of The Stock Market?
– ZH
As the following chart from Morgan Stanley
indicates, metal prices tend to be a good predictive indicator of global
industrial production. The disturbing finding is that on a year over year
basis, metal prices have just gone materially negative for the first time since
the Great Financial Crisis,
QUANT STUFF
“Any old map will do” meets “God is in every
leaf of every tree”
– Andrew
Gelman
As a statistician I am particularly worried
about the rhetorical power of anecdotes (even though I use them in my own
reasoning; see discussion below). But much can be learned from a true anecdote.
The ough edges—the places where the anecdote doesn’t fit your thesis—these are
where you learn.
Confusing Statistical Term #6: Factor – The
Analysis Factor
Factor is
confusing much in the same way as hierarchical and beta, because it too has
different meanings in different contexts.
Factor might be a little worse, though, because its meanings are
related.
Miller, Mathematics and Statistics for
Financial Risk Management – Reading
The Markets
Although this book carefully and clearly
explains the basic math and statistics at the heart of risk management, it does
more. It also uses math and statistics to explain the shortcomings of some
financial risk management tools.
Data and visualization blogs worth following – FlowingData
Credit Suisse: Making Fat Tails Work for You – All
About Alpha
Both theory and empirical evidence on the
success of certain “modified risk techniques” show that they can do what they
are designed to do. They can accommodate fat tail events and diversify a
portfolio’s sources of return.
Absolute vs. relative volatility of rates – Sober
Look
Risk measurement models often attempt to
project the behavior of the yield curve based on historical rate movements. But
the assumptions that go into such modeling could often produce misleading
results. Here is why.
Risk Premia Harvesting Through Momentum – Optimal Momentum
(pdf)
…what makes it most effective. We do this first
by introducing a hurdle rate filter before we can initiate long positions. This
ensures that momentum exists on both an absolute and relative basis and allows
momentum to function as a tactical overlay. We then explore the factor most
rewarded by momentum - extreme past returns, i.e., price volatility. We
identify high volatility through the paired risk premiums in foreign/U.S. equities, high
yield/credit bonds, equity/mortgage REITs, and gold/Treasury bonds. Using
modules of asset pairs as building blocks lets us isolate volatility related
risk factors and use momentum to effectively harvest risk premium profits.
Momentum Crashes Revisited – Optimal
Momentum
Volatility based position sizing is similar to
risk parity and is related to mean variance portfolio sizing. I researched this
topic myself last year with respect to multi-asset momentum portfolios and
rejected volatility sizing for several reasons.
PEOPLE
Five Hedge Fund Managers Who Lost Their
Superstar Status – Institutional
Investor
External auditor: 'Nobody at a bank can have a
complete overview any more' – The
Guardian
Are banks' accounts too complex to oversee? An
external auditor talks to Joris Luyendijk about understanding true risks
Restructurer: 'I have had stones thrown at me' – The
Guardian
Joris meets a restructurer who sees his job as
repairing companies that saddled themselves with debt in good times
“How to Lie with Statistics” guy worked for the
tobacco industry to mock studies of the risks of smoking statistics – Andrew
Gelman
ECONOMICS
The great divide – The Economist
Why American house prices have corrected more
than those in Europe: American banks had poorer lending standards and have been quicker to
foreclose on properties; borrowers have been readier to walk away from their
homes. In European countries, owners have been able to sit tight in the hope
that prices will recover... Europe is going in the same direction as America. It is just getting there more slowly.
Bringing It All Back Home – Project
Syndicate
Howard Davies: Global policymakers regularly
congratulate themselves on having avoided the policy errors of the 1930’s
during the financial crisis that began in 2008.
Four Fiscal Charts – Krugman
/ NYT
the reality is that we have deficits because
the economy is depressed, but relative to previous policy we’ve been imposing
fiscal austerity, not stimulus.
When Fundamentals No Longer Apply, Review the
Fundamentals – Sprott
Asset Management
Roundup of
themes from US housing, Spain, IMF, BRICs
Productivity in the Euro area: any evidence of
convergence? – ECB (pdf)
working paper by David Sondermann
Philippe
Maystadt: competition and intangible capital
A World of Convergence – Project
Syndicate
Kemal Derviş:
“Catching up” is easier than leading the way. But there is still room for 10-20
years of “catching up”,
NGDP Targeting: Some Questions – MacroMania
The potential of NGDP targeting – Macro
Matters
Not knowing
the level of potential GDP actually makes NGDP targeting more reasonable
You will buy more Govvies, or else – alphaville
/ FT
Financial
repression, or forced bond buys, is the most probable solution