Nouriel Roubini’s Facebook Friends
Anna Chapman (HT: Chris Joye).
posted on 01 July 2010 by skirchner in Economics, Financial Markets
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Profit from Kevin Rudd’s Defeat
Go long Julia Gillard here.
posted on 24 June 2010 by skirchner in Financial Markets, Politics
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The Australian Origin of Hedge Funds
Sebastian Mallaby profiles Arthur Winslow Jones, the Australian-born pioneer of hedge funds:
he studied at the Marxist Workers School in Berlin, ran secret missions for a clandestine anti-Nazi group called the Leninist Organization and reported on the civil war in Spain, where he hitch-hiked to the front lines in the company of Dorothy Parker…
Mr. Jones’s second distinguishing feature was a conscious avoidance of regulation. In his previous life as an anti-Nazi agent, Mr. Jones had kept a low profile. As a hedge-fund manager, likewise, Mr. Jones escaped the attention of regulators by never advertizing his fund; he raised capital by word of mouth, which sometimes meant a word between mouthfuls at his dinner table. Unhindered by the government, Mr. Jones expected no help from it either. The Jones men knew that if they mismanaged their risks, their fund would blow up—and nobody would save them.
posted on 13 June 2010 by skirchner in Economics, Financial Markets
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iPredict Australian Federal Election Market and Election Timing
iPredict has launched a market on the outcome of this year’s Australian federal election, with a Labor Prime Minister (not necessarily Kevin) priced at 51% and a Liberal Prime Minister (again, doesn’t have to be Tony) priced at 45%.
Anthony Green provides a handy primer on likely federal election timing:
As the Constitution prevents writs for a half-Senate election being issued before 1 July this year, the first possible date on which a House and half-Senate election can be held is 7 August.
Constitutionally the last possible date for the election is 16 April 2011.
However, the fixed term election dates for Victoria on 27 November 2010 and NSW on 26 March 2011 mean that the Federal election will have to be over by the end of October to avoid overlap with state polls.
With football finals in September, and Commonwealth Games in October, that means the date for the Federal election date is likely to be either in August, early September, or between the 16th and 30th of October.
posted on 11 June 2010 by skirchner in Economics, Financial Markets, Politics
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US Equities to Outperform?
Bob Doll makes the case for the continued outperformance of US equity markets:
U.S. equities arguably have been outperforming. In the first four months of 2010, U.S. markets were up roughly 6.5%, compared with 2.6% for global equities. Many European markets were in negative territory; only Japan was outpacing the U.S. When the sovereign-debt crisis escalated in May, European, Japanese and emerging markets stocks all fell more sharply than U.S. markets. The bottom line is that the U.S. has generally performed better on the upside this year and held its ground better on the downside.
While I would have once been sympathetic to this argument, the case for outperformance of US equities has been undermined by growing US convergence with European public policy outcomes. I’ve already indicated I’m on the side of John Quiggin in the Quiggin-Caplan wager, because the US is thinking more and more like Quiggin and less like Caplan. Public policy in the EU is not appreciably worse than it has been in the past, but the rate of deterioration in the US implies that their respective structural unemployment rates should converge via a faster rate of deterioration in the US. The capital allocation process in the US is now so compromised by political intervention that there is little reason to believe in the continued structural outperformance of the US economy. Differences in labour market institutions won’t matter much in this context. Caplan himself puts his chances of winning at only 60%.
posted on 08 June 2010 by skirchner in Economics, Financial Markets
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The Evidence-Free Nouriel Roubini
Terence Corcoran reads Roubini and Mihm’s Crisis Economics, so you don’t have to:
Crisis Economics, perhaps needless to say, presents no evidence to support any of its conclusions, assertions and judgments. It’s not an economics book, really; it’s a populist economic pamphlet that aims to promote and justify massive bouts of government spending, monetary madness and regulation.
posted on 25 May 2010 by skirchner in Economics, Financial Markets
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Death by Narrative
Pete Wallison on how bad ideas destroyed ‘the most innovative and successful financial system the world has ever known’. As Kevin Hassett notes:
It wasn’t a coincidence that equity markets posted their biggest drop in more than a year the day the U.S. Senate passed its sweeping financial reform bill…America has become the land of high taxes, big government, complex regulations and indignant politicians. The future of such a place is not bright. The markets understand that.
posted on 25 May 2010 by skirchner in Economics, Financial Markets, Rule of Law
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How Republican Populism Gave Us the Dodd Bill
The US Senate passes what is potentially the most devastating regulatory attack on the foundations of US prosperity since the New Deal. Pete Wallison blames Republican populism:
How did this happen? After Scott Brown’s election to Ted Kennedy’s Senate seat, Republicans had the votes to prevent the closing of debate and keep the Dodd bill off the Senate floor. They could have argued that legislation this important should not be rushed through Congress. They could have pointed out that there were no hearings on most of the major elements of the bill. And they could have reminded the Democrats that the commission Congress appointed to advise them on the causes of the financial crisis would not be reporting until mid-December.
They did none of these things. Instead they backed away from cloture, allowing the legislation to go to the Senate floor where the bill, bad enough to begin with, became steadily worse. Amendments to allow the Fed to regulate interchange fees on debit cards, and to force banks out of the derivatives business are only two examples. This was fully predictable, since the unpopularity of Wall Street and the banks would encourage amendments hostile to business and finance.
Why was the GOP unable to stand united and filibuster the bill before it reached the Senate floor? For the least meritorious of reasons, it seems: unwillingness to go to the voters this November without having done “something” to punish Wall Street and the banks.
posted on 21 May 2010 by skirchner in Economics, Financial Markets, Rule of Law
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Privatisation Can Mitigate Greek Debt Crisis
Alan Meltzer on privatisation as a partial solution to Greek debt problems:
Much of Greece’s industry and commerce, including much of the tourist industry, is owned by the state. It should be sold with the proceeds used to reduce public debt. That would make the remainder of the debt more sustainable and transfer workers to the private sector where competitive pressures for lower wages and increased productivity would more closely align employment costs and reality. If the socialist government returned more of the economy to the private sector, Greece would have a better chance of economic recovery.
posted on 21 May 2010 by skirchner in Economics, Financial Markets, Fiscal Policy
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AUD Underperformance and the RSPT
That the Australian dollar should underperform the euro is not entirely surprising, given that AUD typically suffers from the global risk aversion trade, along with commodities and other assets that are perceived as risky. What is harder to explain is AUD’s underperformance against the New Zealand dollar, given that NZD is typically viewed as being even riskier than AUD. A CTA I spoke to earlier in the week said that the message from the broker dealers is that foreign capital is exiting Australia because of the proposed RSPT. Australian equity markets underperformed the Nikkei and Hang Seng yesterday.
posted on 21 May 2010 by skirchner in Commodity Prices, Economics, Financial Markets
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The Money Supply Growth that Isn’t
Bob McTeer debunks the inflation fears of fever-swamp Austrians:
What am I missing? I keep hearing people on financial TV say things like “The Fed keeps pumping out the dollars,” “The Fed keeps monetizing the debt.”
Then I go look up money-growth charts. I can’t find all this excessive money creation that is monetizing the debt and is about to create a breakout in inflation. Not M1; not M2…
To repeat the obvious, because others won’t, money growth is almost flat. Flat money growth does not cause inflation—especially when we have enormous slack in the economy along with rapid productivity growth and declining unit labor cost. We may get inflation in the next few years, but, if so, it will be based on money growth yet to happen. It hasn’t happened yet.
posted on 19 May 2010 by skirchner in Economics, Financial Markets, Monetary Policy
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The Acid Test for the Euro
John Cochrane explains why the Greek bail-out tells you everything you need to know about the euro:
Greek bondholders are not being asked to miss a single interest payment, reschedule a cent of debt, suffer any write-down, take a forced rollover or conversion of short to long-term debt, or any of the other messy ways insolvent sovereigns deal with empty coffers. Those who bought credit default swaps lose once again…
The only way to solve the underlying euro-zone fiscal mess (and our own) is to slash government spending and to focus on growth. Countries only pay off debts by growing out of them. And no, growth does not come from spending, especially on generous pensions and padded government payrolls. Greece’s spending over 50% of GDP did not result in robust growth and full coffers. At least the looming worldwide sovereign debt crisis is heaving “fiscal stimulus” on the ash heap of bad ideas.
posted on 18 May 2010 by skirchner in Economics, Financial Markets, Fiscal Policy
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Nouriel Roubini’s Secret IMF Speech
Eric Falkenstein goes in search of Nouriel Roubini’s 2006 speech to the IMF:
In Michiko Kakutani’s NYT book review of Nouriel Roubini’s Crisis Economics, and in the book’s foreward, a September 7, 2006 IMF speech is highlighted as containing specific warnings about US housing, and how this would lead to a financial contagion. This would seem to be highly prophetic. So I went to his website looking for this speech. It linked to something from 2009. To get to this point I had to register at his site, and they sent me a an email message, asking what I wanted to know (they seem to sell different levels of access at the Roubini Global Economics—a sort of CNBC with only negative spin). I asked to see the 2006 speech mentioned in the NYT book review, and they pointed me towards a different speech in 2006 that was rather vague. So I asked again for the rather prominent September 7 2006 speech, and they did not answer.
I bet the speech mentions not merely the housing problems, but a bunch of things that could go wrong that did not, which would suggest indiscriminate crisis prediction that is not so impressive.
Here is an IMF account of the speech. Oliver Hartwich and I also referenced the speech in our profile of Roubini for Juedische Allgemeine (English version here), for which we had to rely on second-hand accounts.
posted on 18 May 2010 by skirchner in Economics, Financial Markets
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The Dodd Bill and Crony Capitalism
Cliffford Asness and Aaron Brown on the rise of the Treasury-financial complex:
The Dodd bill is perfectly designed to create the largest and most powerful crony system in history. It’s not that the people, regulator or regulated, are personally corrupt. It’s that the system will itself select for, reward and enforce corruption.
No financial professional will be able to turn down a “request” for a campaign contribution, and all financial institutions will hire former staffers as advisers or directors. No regulator can afford to antagonize a potential future employer. Regulators themselves must kowtow to Congress, which can use them for under-the table subsidies to favored groups. None of this is new to politics, of course, but the scale and lack of defined powers are.
posted on 15 May 2010 by skirchner in Economics, Financial Markets, Rule of Law
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Nassim Taleb’s DIY Black Swan Event
From the WSJ:
The working theory among traders and others involved in the exchange meltdown is that the “Black Swan”-linked fund may have contributed to a “Black Swan” moment, a rare, unforeseen event that can have devastating consequences.
As Eric Falkenstein notes, this episode may shed light on how Nassim Taleb really makes his money:
All the while, however, he makes huge fees, because 1% on $4B is a lot of money, and his wealth will serve as proof that he’s an investing genius. More importantly, he then selectively presents to a credulous press he makes billions off his market savvy.
Gee, someone should write a book about blow-hard traders who misrepresent their track records and take excessive risk with other-people’s money, all due to cognitive biases they are too shallow to notice in themselves. Oh yeah, Taleb has done that! I guess his insider status gives him better insight.
posted on 14 May 2010 by skirchner in Economics, Financial Markets
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