Saturday, September 5, 2009

SAR #9247/Weekender

Politics is the art of putting things off.

Unspun Data: Unemployment fell from 9.4% in July to 9.7% in August. The Dow ended the day up 96 points. The economy lost another 216,000 jobs, 50,000 less than in July, suggesting that more people were on the streets looking for jobs. The 'underemployment rate' now stands at 16.8%, and there are 14.9 million unemployed Americans. Spin it any way you want.

Fuelish Citizens: At least 40 civilians were killed in a giant fireball and many more burned when a US jet bombed two NATO fuel tankers that had been captured by the Taliban and was being emptied by the local populace, who needed an object lesson. As General McChrystal has said, the US needs to rethink its strategy. Rethinking its tactics would seem in order, too.

Wish I'd Said: “War is the parent of armies; from these proceed debts and taxes; ... the known instruments for bringing the many under the domination of the few.... No nation can preserve its freedom in the midst of continual warfare.” That was James Madison, long before we turned into the most bellicose nation on the planet.

Moving On Up: Prime credit-card loans are performing worse than the subprime group. The nation's most credit-worthy borrowers are defaulting on their mortgage and credit-card payments at a faster pace than people with poor financial histories. Sounds like text for Sunday's sermon.

Snap Quiz: In today's economy, do we see (a) too many consumer dollars chasing scarce goods. Or (b) too many goods looking for buyers. If (a), then inflation is probable. If (b), deflation is underway. School's out.

Take Home Exam: The Arctic has been receiving less energy from the sun over the last 8,000 years, and yet a 2,000 year cooling spell has been dramatically reversed in the last century. Usual prize for the first to explain this phenomena without reference to burning fossil fuels. Accurately explain.

Resetting the Clock: Debt got us into this mess and we seemed determined to leave with the one what brought us. Seems unlikely that a short-term, unfocused stimulus will solve long-term structural problems. At best it will put off until tomorrow that which should have been done long ago. Printing more chits redeemable in future Monopoly money is not part of a real world solution.

Career Counseling: To get a job offer, be willing compete on price. Of the competition, 65% will take a 30% wage cut. If you are willing to accept about half of what you used to make – or minimum wage, whichever is higher – you chances of getting an offer improve greatly.

Montezzuma's Revenge: The head of public security for the state of Quintana Roo, Mexico (think Cancun and Cozumel) has been arrested for involvement with drug gangs. His arrest followed the earlier arrests of a number of other senior officials, including Cancun's chief of tourism police.

Why Finance? The financial sector is supposed to connect savers with borrowers – providing “intermediation services”. But modern finance has largely if not completely decoupled asset prices from any underlying reality. How else to explain half a quadrillion dollars in derivatives? The basic purpose of the financial market has been forgotten.

Enlightenment: The problem with explaining the origin of life on Earth is that the conditions that existed before life (little oxygen, lots of UV radiation) are wholly different than the conditions that life created (an oxygen rich atmosphere). Scientists now suggest that life originated at photosynthetically-active porous structures made of zinc sulfide similar to deep-sea hydrothermal vents. And now you know.

Porn O'Graph: See if you can locate the Industrial Age.


K Ackermann said...

Just in case there is not enough mystery in the origin of life for you, there is this little oddity:

Like DNA, RNA is made up of base pairs, or nucleotides, each being one of 4 chemicals abbr. A,C,T,U. They triple up to form a codon, and a codon codes for an amino acid. Ribosomes 'read' a strand of RNA (a string of codons) and assemble a protein by gluing specific amino acids together.

4 chemicals in each of the 3 slots of a codon = 4 x 4 x 4 = 64 possible configurations that a codon can assume. The thing is, there are only 20 (?) amino acids, so there is some redundancy in the mapping. Nearly all amino acids have at least 2 codon states that code for it, and one acid even has 6 states.

At first glance, the mapping looks arbitrary - so arbitrary that the fact that virtually all life shares the same encoding puts the odds overwhelmingly in favor of a common progenitor from which all species evolved.

The thing is, when the mapping was analyized statistically, it was discovered that the mapping is very resiliant to a mutation in the 3rd nucleotide slot in the codon. I.E. a mutation stood a good chance of mapping to a redundent code for the same amino acid.

That is a little bit more than amazing, because it begs the next question, how did it hit on this seemingly beneficial coding? The odds are millions against.

The Darwin explaination would be that it won out against competing mappings, but that implies that multiple chemicals that were complex enough to reproduce themselves emerged at overlapping times, and that implies that it is so common, that we should regularly see something with a competing mapping try and make a go of it now and again, but no dice.

(That last part is somewhat of a lie, but I don't feel like typing it out, so I'll just pretend it's true. In spirit, it's true.)

Bill said...

Why Finance? Spot on. Here's an excerpt from a recent Financial Times article, via naked capitalism, by Harvard economics professor Benjamin Friedman, entitled Overmighty finance levies a tithe on growth:

The crucial role of the financial system in a mostly free-enterprise economy is to allocate capital investment towards the most productive applications…

If a new fertiliser offers a farmer the prospect of a higher crop yield but its price and the cost of transporting and spreading it exceeds what the additional produce will bring at market, it is a bad deal for the farmer. A financial system, which allocates scarce investment capital, is no different.

The discussion of the costs associated with our financial system has mostly focused on the paper value of its recent mistakes…

The estimated $4,000bn of losses in US mortgage-related securities are just the surface of the story. Beneath those losses are real economic costs due to wasted resources: mortgage mis-pricing led the US to build far too many houses. Similar pricing errors in the telecoms bubble a decade ago led to millions of miles of unused fibre-optic cable being laid.

The misused resources and the output foregone due to the recession are still part of the calculation of how (in)efficient our financial system is. What has somehow escaped attention is the cost of running the system…..

For years, much of the best young talent in the western world has gone to private financial firms. At Harvard more than a quarter of our recent graduates who have taken jobs have headed into finance…. we are wasting one of our most precious resources…..much of their activity adds no economic value.

Perversely, the largest individual returns seem to flow to those whose job is to ensure that microscopically small deviations from observable regularities in asset price relationships persist for only one millisecond instead of three…

In the US, both the share of all wages and salaries paid by the financial firms and those firms’ share of all profits earned have risen sharply in recent decades. In the early 1950s, the “finance” sector (not counting insurance and real estate) accounted for 3 per cent of all US wages and salaries; in the current decade that share is 7 per cent. From the 1950s to the 1980s, the finance sector accounted for 10 per cent of all profits earned by US corporations; in the first half of this decade it reached 34 per cent…

What makes a more efficient financial system worthwhile is not just that it allows us to achieve greater production and economic growth, but that the rest of the economy benefits. The more the financial system costs to run, the higher the hurdle…

Economic decisions are supposed to turn on weighing costs and benefits. It is time for some serious discussion of what our financial system is actually delivering to our economy and what it costs to do that.

K Ackermann said...

That was a good article about the financial system.

What infuriates me is the dogmatic belief in certain market principles that simply are not true. Not always.

How many times are we hit over the head with the notion that markets are always efficient? We are not to even question the principle, but the statement doesn't even make sense. It's the same as claiming my stereo is better because it goes up to 11.

What does 'most efficient' mean? Is that for all time? Without putting a duration on it, it can only mean it is most efficient at setting a price on a spot transaction. It has nothing to do with the notion of efficiency that they pretend it does.

What is efficient about a short-term gain that does not address longer-term impact?

What else drove the ratings agencies to the large-scale fraud they commited when assigning risk to bonds they had zero information on? My guess is short term gains.

Globalization, and labor arbitrage? How's that working out? It's not so good for us either.

From now on, anytime I hear someone mention market efficiency as dogma, I am going to try to get them to admit they mean instantaneous price efficiency to maximize short term profit irregardless of future consequences.

Short term gain is the other way to go with a product or service. Use whatever looks like infant formula or pet food that is cheaper than the real stuff, dump on market, hide profits, go bankrupt. Sometimes it's a lower-risk model. If it isn't, then the the big shareholders want it done even faster so they can take their profits and go wreck something else.

Another real efficient group of people who add so much value are these IP prostitutes who gobble up patents. They do not fund R&D. It's cheaper for them to starve creative talent than to feed creative talent, and that's efficiency for you.

Bill said...

KA, you are very insightful. You may enjoy this short piece, which tangentially mentions that modern computerized trading (i.e., financial prospecting in search of ultra-short-term profits) decouples asset prices from underlying values, thus undermining the very purpose of markets - while poking fun at the overmatched CNBC anchors.

K Ackermann said...

Oh, my. That was painful to watch. He must have done something terrible to get stuck there. How on earth did CNBC get stuck with an honest, smart guest? Somebody messed up in programming.

I kept hoping a graphic would pop up that said, "He's trying to warn us about something!"

I forget where I heard this, but supposedly Larry doesn't even trade. It may have been Kramer accidently ratting him out.