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Sunday, September 23

23rd Sep - Weekender: Economics & Markets

 This weekend's sections include Economics, Regulation, Trading & Markets, Hedge Funds, Algo & HFT, Other. Some pretty interesting ones, but no absolutely must-read articles.

Previously on MoreLiver’s:
22.9. Disregard This Post (links to euro breakup analysis)
21.9. Weekender: Weekly Support (weekly reviews and previews)

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The Gray TsunamiDiscover
The world faces a wave of aging, and with it wrenching social and economic changes. An Arizona retirement community hints at things to come.

Excessive Reserve Accumulation and International Trade BalancesPIIE

The doomsday cycle turns: Who’s next?
Simon Johnson, Peter Boone: Industrialised countries today face serious risks – for their financial sectors, for their public finances, and for their growth prospects. This column explains how, through our financial systems, we have created enormous, complex financial structures that can inflict tragic consequences with failure and yet are inherently difficult to regulate and control. It explains how this has happened and why there are more and worse crises to come.

The Narrative Structure of Global Weakening Project Syndicate
Robert Shiller: When one considers the evidence about external economic shocks over the past year or two, what emerges are stories whose precise significance is unknowable. We only know that most of us have heard them many times.

What’s the use of economics?
Five years after Lehman’s collapse, economics is under fire both from outside and inside the profession for irrelevance, arrogance and more. This column introduces a new Vox debate focused on two questions: What’s the use of economics, and how should we be teaching it to the next generation?

Morgan Stanley on fundamentals versus monetary policyalphaville / FT
Central bankers in the US and Europe may think they’re engaging in policies accommodative to economic growth, but two can play in this game of acronyms! The team at Morgan Stanley fights letters with letters, in a note released on Friday

60-Second Adventures in EconomicsFarnam Street
If you want to learn about economics, these videos are for you.

Inflation: The global output gapFree exchange / The Economist
If the resource-price moves that have been tripping up central bankers since 2000 suddenly moderate, then what happens next? If the global potential story is right, then the critical dynamic once again becomes the flow of new labour into the global economy.

Examining the Recession’s Effects on Labor MarketsFED

Understanding central bank balance sheetsBuba
Guest contribution by Dr Joachim Nagel, Member of the Executive Board of the Deutsche Bundesbank, to The International Economy magazine, no 26 (2012), published on 31 August 2012.

A Rare Look at Why the Government Won't Fight Wall Street Rolling Stone
The great mystery story in American politics these days is why, over the course of two presidential administrations (one from each party), there’s been no serious federal criminal investigation of Wall Street during a period of what appears to be epic corruption. People on the outside have speculated and come up with dozens of possible reasons, some plausible, some tending toward the conspiratorial – but there have been very few who've come at the issue from the inside.

Bank Supervision: Bye Bye Basel?EconoMonitor
So why this call to “reset” Basel? The desire for a new, simpler, bullet-proof regulation may just a way to make up for the weaknesses of supervision, which were the true trigger behind the latest financial crisis (as shown by the fact that EU member states – having the same rules in place –  were very unevenly affected).

Do bailed-out banks remain bad, while good banks behave better?alphaville / FT
The trauma and cost of a public rescue must surely teach the bank management concerned to behave in a more prudent manner, right? Wrong, according to a recent Bank of International Settlements paper.

Whistleblowing incentives just got internationalalphaville / FT
Last week’s news that Bradley Birkenfeld, aka ‘Tarantula’, was awarded $104m for his role in exposing a UBS tax evasion scheme that cost the US government billions of dollars sent waves around the financial world. The case has important ramifications for bankers globally.

What Business is Wall Street In?Mark Cuban

Will Nasdaq Be The Next Casualty Of The SEC's Anti-Latency Arbitrage Push?ZH

Take on Wall St titans if you want reformJohn Kay
The only sustainable answer to the issue of systemically important financial institutions is to limit the domain of systemic importance. Until politicians are prepared to face down Wall Street titans on that issue, regulatory reform will not be serious.

A Lonely RedemptionNYT
He knows Wall Street’s heights. He helped hire Michael R. Bloomberg, and he invested the money of two former Securities and Exchange Commission chairmen, making a fortune in the 1980s. And he knows its depths, since he pleaded guilty to stock manipulation in 1989, and was barred from the Street.

If I ruled the world: Michael SandelProspect Magazine
It is time to restore the distinction between good and gold

On The Rise Of ETFs As A Driver Of Bond ReturnsZH

A Foolish Interview With Michael MauboussinThe Motley Fool
Chief investment strategist at Legg Mason Capital Management and adjunct professor of finance at the Columbia Business School. We had an outstanding conversation about his views on investing and how we can get better, as well as his new book to be released soon, The Success Equation.

How to Identify High Quality Stocks, Continued (Part 3b of 4)Turnkey Analyst

A Small Survey of Quantitative Models that Discard Estimation of Expected Returns for Portfolio ConstructionSSRN
We notice that the benchmark model has a poor risk adjusted performance while the Minimum Variance and Minimum Expected Shortfall models have good results.

Ray Dalio on QE3, Gold, China, Europe, Economy & More (Interview)market folly

Book Bits | 9.22.2012The Capital Spectator

DB: gold price to hit $1,900 by the end of OctoberSober Look

A Perspective on Quantitative Finance: Models for Beating the Market (2003)Ed Thorp / Quantitative Finance Review (pdf)

Why you have to be very lucky to have average luckAaron Brown / Minyanville

Insider Trading PatternsTurnkey Analyst
We document two patterns of informed insider stock trading: isolated trades and trade sequences. Isolated trades are trades in a single month while sequenced trades are those by the same insider over several consecutive months. Approximately 25 percent of trade months are sequenced, and they include about 40 percent of trade days. Monthly abnormal returns following isolated insider stock sale (purchase) months are -60 to -100 basis points (60 to150 basis points) greater in magnitude than those following trade months that are sequenced.

Top 10 Operational Risks: The first two risk areas in a 10-part seriesAll About Alpha
SEI put together a 10-part guide as an effective risk management tool to set the foundation for operational excellence. Below are excerpts from the first two chapters, now available for download at

Quant: A Dangerous Word Frequently Misused and MisunderstoodMinyanville
Aaron Brown: False etymologies and sloppy use can lead to errors. An essay on the meandering path of the word "quant" from 1896 to the present.

Investor Decisions - Experience Is Still Not Enough (But It Helps A Bit) The Psy-Fi Blog
The general idea is that our personal observations don’t generalize, because market behavior is continually adapting under evolutionary pressure. Now recent research confirms this, up to a point.

Don’t Blame Hedge Funds for Financial Crisis, Study SaysMarketBeat / WSJ

Revisiting Kat's Managed Futures and Hedge Funds: A Match Made in HeavenSSRN
We revisit and update Kat's original work. Using similar data for the period June 2001-December 2011, we find that his observations continue to hold true more than 10 years later. During the subsequent 10.5 years, a highly volatile period that included separate stock market drawdowns of 36% and 56%, managed futures have continued to provide more effective and more valuable diversification for portfolios of stocks and bonds than have hedge funds.

Giant Infographic Guide to Hedge FundsThe Big Picture

America's Richest Hedge Fund ManagersForbes

Chicago Fed laments ‘out-of-control’ algorithms Marketwatch
Errant math algorithms ‘more common than anticipated’: report

How to Save a Wounded Market from Rogue AlgosAdvanced Trading
You couldn't ask for a better example in the Knight Capital debacle of how quickly today's fast markets can claim a victim. Will this be the last of the rogue algorithms to hit the markets?

Can Buy-Side Traders Trust Their Brokers' Algos?Advanced Trading

How Are Algos Tested?Advanced Trading

The HFT challenge to global equity marketsqfinance

Duhigg, The Power of HabitReading The Markets
Most habits are innocuous enough; they don’t make a major difference in our lives. But some habits do, and not always for the better. Moreover, no matter what we do, those bad habits never really disappear; “they’re encoded into the structures of our brain.”

'Solidarity – is that word even used in English?' The Guardian
After years with a US firm, Sebastian moved to a big German bank. He believes he has much to be grateful for in Frankfurt

Frankfurt bankers: where have all the lads gone?The Guardian
For London City types it's beer o'clock, their but risk-averse 'cousins' prefer sipping Apfelwein and chewing on a sausage

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