Previously
on MoreLiver’s:
CHINA
SocGen's Presentation On The Slowing State Of
The Chinese Economy
– BI
In a year of political transition, the Asian
giant has to grapple with a deflating housing bubble, job creation, an economic
slowdown, a massive shadow banking system, and reforms that would help
internationalize their currency. (full 15-slide presentation)
As of 10:15am on Nov. 26, 2011, Beijing had identified 225 corrupt officials, 58 of them at the local
high-level (ditingji) and above, who had embezzled over 2.5 billion yuan
USA
IOER, negative rates, and Ben – alphaville
/ FT
The ECB’s recent decision to lower its deposit
rate to zero raised speculation in the market that the FOMC might be
considering the reduction or elimination of the 0.25 per cent interest the Fed
pays on excess reserves.
The QE Commodity Mechanism – The
Source / WSJ
there’s always a drought somewhere, and Middle East turmoil is the norm. Looking back
over the past five years, commodity prices have tended to spike hard in the
wake of central bank easin
ASSETS
Lack of product, cash on the sidelines, and low
rates, all driving HY valuations to new highs – Sober
Look
The Education of a Mortgage Bond Manager, Part
I – The
Aleph Blog
(12-part series for corporate bond managers
begins here.)
The Abysmal Earnings Season Explained In Two
Charts – ZH
Relentless rise in food prices already showing
up in inflation indicators – Sober
Look
Food inflation will prevent emerging markets
nations's central banks from stimulating their economies in an environment of a
global slowdown. This could lead to stagflation that impacts global growth.
TRADING
Tired Investing – Cabot Research
This essay examines the role that decision
fatigue plays in investing and describes how self awareness and process can
keep your portfolio energized.
Notes From Delivering Alpha Conference – market
folly
Ideas from
good names.
Why We're Driven to Trade – WSJ
New research suggests that in order to avoid
trading your accounts to death, you must counteract some of the very tendencies
that make Homo sapiens the most intelligent of all species.
Jim Chanos: Psychology of short selling (15
min) – Youtube
China makes Europe, U.S. debt look like child's play
Winning Methods of the Market Wizard – Youtube
Jack
Schwager’s lecture
Mindless Money Series:
Part1: Focus on Failure – The
Psy-Fi Blog
we don’t seem to learn from our mistakes, even
when the feedback is quite obvious.
Part2: Don’t Oversimplify – The
Psy-Fi Blog
oversimplifying stuff is a dangerous, mindless,
trait for an investor.
Part3: Hold the Big Picture – The
Psy-Fi Blog
hold a mental model – a cognitive map – of the
important factors
Part 4: Stay Resilient, Be Prepared – The
Psy-Fi Blog
Developing emotional resilience is, in part,
about experience.
Part 5: Avoid Overspecification – The Psy-Fi
Blog
A mindful system is, by definition, a fluid
one.
Trading Diary talk:
Weekend
Project: Optimize Your Trading For Better Profitability – bclund
The #1
Indicator Professionals Focus On – The
Trader’s Journal
Words of Wisdom by the late Barton Biggs – The
Big Picture
“As investors, we also always have to be aware
of our innate and very human tendency to be fighting the last war. We forget
that Mr. Market is an ingenious sadist, and that he delights in torturing us in
different ways.”
10 Spectacular Speculations of the Past 300
Years – Gresham’s
Law
Stock Picking Contests – Mebane
Faber
PORTFOLIO
The new paper fine-tunes their evidence that
three basic ways to manage currency portfolios dominate most outcomes in
currency markets, and any skilled money manager can replicate them.
Adaptive Asset Allocation: Combining Momentum
with Minimum Variance
– CSS
Analytics
The alluring promise of AAA rests upon the
ability to dynamically adjust to different economic conditions.
Not Equal: A Comparison of “Risk Parity” and
“Equal Risk Contribution” – CSS
Analytics
it is best to simply consider Risk Parity as a
broad class of risk-budgeting schemes where the risk of each asset in the
portfolio is leveraged (if necessary) to have the same volatility.
Dynamic Portfolio Choice – SSRN
The foundation for a long-term investment strategy is rebalancing to fixed asset class positions, which are determined in a one-period portfolio choice problem where the asset weights reflect the investor’s attitude toward risk. Rebalancing is a counter-cyclical strategy that has worked well even during the Great Depression in the 1930s and during the Lost Decade of the 2000s.
The foundation for a long-term investment strategy is rebalancing to fixed asset class positions, which are determined in a one-period portfolio choice problem where the asset weights reflect the investor’s attitude toward risk. Rebalancing is a counter-cyclical strategy that has worked well even during the Great Depression in the 1930s and during the Lost Decade of the 2000s.
2 dimensions of portfolio diversity – Portfolio
Probe
Asset-portfolio
correlation and the fraction of the portfolio variance that each asset accounts
for.
The Rise of Global Stock Market Crash
Probabilities – SSRN
…the probability of observing a global crash in
a given week has increased fifteen times. This significantly and dramatically
increased global crash probability shows the decrease in diversification
opportunities in global stock markets. The Asian crisis and particularly the
credit crisis contributed to substantially higher global crash probabilities.
Employment-Population Ratio and Stocks Over the
Intermediate Term –
CXO
evidence from simple tests offers no support
for a belief that monthly changes in the U.S. employment-population
ratio usefully predict next-month U.S. stock market returns.
For an annual horizons, there is slight indication of an inverse relationship.
ECONOMICS
A Dynamic Factor Model of the Yield Curve as a
Predictor of the Economy – The
Big Picture
The nonlinear model is used to investigate the
interrelationship between the phases of the bond market and of the business
cycle. The results indicate a strong interrelation between these two sectors.
The proposed factor model of the yield curve exhibits substantial incremental
predictive value compared to several alternative specifications. This result
holds in-sample and out-of-sample, using revised or real time unrevised data.
Blogs review: HP Filters and business cycles – bruegel
a recent speech by St. Louis Fed President Bullard
has launched a debate on the blogosphere over the use of a statistical technique
called the Hodrick-Prescott filter. The technique – as well as so-called
Bandpass filters – is used to decompose economic data into a trend and a
cyclical component. The controversy came out as James Bullard pointed to these
estimates – together with the fact that we don’t see deflationary pressures –
as evidence that advanced economies are operating near potential, if not above.
Something Big happened in the early 70s – Noahpinion
After that point, real average wages have stayed
unchanged. Why? Bretton Woods, oil crisis, technology?
Has the right won on taxes? – Salon
Just because a president does what voters say
they want doesn’t guarantee they'll approve
Publication Research Bulletin No. 16 – ECB
(pdf)
Does regulation at home affect bank risk-taking
abroad? – Cyclical precautionary saving and monetary policy – What drives the US personal saving rate?
The role of wealth, credit and uncertainty.
The value-added content of trade – voxeu.org
Intermediates account for two thirds of
international trade as production is increasingly fragmented across borders.
This column argues this creates challenges for measuring international
interdependence. It presents a measure of value-added exports based on a new
global input-output table. Strikingly, it suggests the US-China imbalance is
approximately 40% smaller when measured on a value-added basis.
The end of decoupling – Foreign
Policy
there is not going to be a global growth engine
in the foreseeable future
Bubbles and Bailouts: Why Some Economists
Failed – Mark
Thoma / The Fiscal Times
I don't think this failure can be blamed on
economists. There was no shortage of effort from many of us to get policies
like these enacted. The question is why nobody listened.
Monetary Policy and Long-Term Real Rates – FED
Changes in monetary policy have surprisingly
strong effects on forward real rates in the distant future.
REGULATION
The answer, I believe, lies in the fact that
our many laws and regulations have never been effectively enforced by financial
regulators, and banks and other financial institutions know they can get away
with paying lip service to the rules.
Bank secrecy masks a world of crime and
destruction – The
Observer
Banks seem willing to exploit the loopholes
found in tax havens and it's costing the British taxpayer dear
Trade minister Lord Green 'failed to halt flow
of drugs cash' as HSBC boss – The
Guardian
US Senate report shows that Lord Green was
warned about money laundering linked to Mexican drugs cartels
Roll Call of Unscrupulous Bankers Is
Unacceptably Long –
View
/ BB
Global banks are the financial services wing of
the drug cartels – The
Guardian
As HSBC executives apologise to the US Senate for laundering
drugs money, the fact is that nothing changes
Tax havens: Super-rich 'hiding' at least $21tn – BBC
A global super-rich elite had at least $21
trillion (£13tn) hidden in secret tax havens by the end of 2010, according to a
major study. (Alea
says the article is “height of idiocy”)
Why Regulation Will Never Fix Sell Side Analyst
Shenanigans – Leigh
Drogen
The purpose for the existence of a sell side
Wall Street analyst is not to publish research and never has been. Wall Street
analysts exist to provide corporate access to their buy side trading clients,
at the same time they are beholden to making the companies they do investment
banking business look good. Nowhere in this equation does the firm or the
analyst get paid for putting out quality research, nowhere.
Happy 2nd Birthday, Dodd-Frank – alphaville
/ FT
Already
8,843 pages of rules and regulation, and only 30% complete.
Swap Market, Like Libor, Is Vulnerable to
Manipulation – DealBook
/ NYT
To the market’s credit, there is no evidence that the process has become corrupted by big banks. Given the evidence of collusion in the rate-manipulation case, however, trusting it to remain that way doesn’t seem like a good plan.
To the market’s credit, there is no evidence that the process has become corrupted by big banks. Given the evidence of collusion in the rate-manipulation case, however, trusting it to remain that way doesn’t seem like a good plan.
No Evidence? No Problem – ISDA
ISDA’s
comment on the above article.
THE PLAYERS
Hedge Fund Performance: First half of 2012 – Practical
Quant
The different style indices trailed the S&P
500 through the first half of 2012.
Four Reasons the Hedge Fund Industry Is
Structurally Dead –
Minyanville
1) The Incentive Structure 2) The Overhead 3)
The Business Model 4) No Opportunity for Unproven Managers to Get Funded
Departing IMF Economist Blasts Fund – naked
capitalism
IMF's Peter Doyle scorns its 'tainted'
leadership – BBC
A top economist at the IMF has poured scorn on
its "tainted" leadership and said he is "ashamed" to have
worked there.
Citigroup's Lost Years – Businessweek
Citigroup’s suffering shareholders might be
compelled to seek comfort from how the bank has overcome centuries of brushes
with death. After all, some four years into its recapitalization, a shrunken
Citi is still trying—desperately—to find its footing.
OTHER
Equity markets are looking “dodgy” – Kiron
Sarkar / The Big Picture
Europe, US GDP, China, stock markets
Book Bits – The
Capital Spectator
Lie Detection 101 for Financial Analysts: How
to Spot Manipulators and Actors – CFA
Institute
The Future is “Theory-Free” – CSS
Analytics
The complexity of the modern world, and the
degree to which it is interconnected, has rendered simplistic linear theory
almost meaningless.
The 2012 Financial Olympics – Macro
Man
As London prepares for the Greatest Show on
Earth, Team Macro Man have been giving some thought to their own favourites for
the 2012 Financial Olympics.
Whodunit? Part II: The Weapon That Killed the
Financial System – Minyanville
Aaron
Brown: Economists and regulators liked
rocket scientist methods because they had been accepted on the trading floor,
and also in the executive suite. Few took the time to understand them. (Part
1 here)