Weekly Roundup 41: A Curated Linkfest For The Smartest People On The Web
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Founder Of Simoleon Sense
Exclusive Feature: A Grand Unified Theory of Market Manipulation – Via Precisioncapmgt & Inoculated Invetor – The theory for which we have the greatest supporting evidence of manipulation surrounds the fact that the Federal Reserve Bank of New York (FRNY) began conducting permanent open market operations (POMO) on March 25, 2009 and has conducted 42 to date. Thanks to Thanassis Stathopoulos and Billy O’Nair for alerting us to the POMO Effect discovery and the development of associated trading edges. These auctions are conducted from about 10:30 am to 11:00 am on pre-announced days. In such auctions, the FRNY permanently purchases Treasury securities from selected dealers, with the total purchase amount for a day ranging from about $1.5 B to $7.5 B. These days are highly correlated with strong paint-the-tape closes, with the theory being that the large institutions that receive the capital injections are able to leverage this money by 100 to 500 times and then use it to ramp equities.
Exclusive Feature: Who Makes More Money Than You Do? – Via PE HUB – Top 10 Highest Paid CEOs Pay Hits The Gas While The Economy Hits The Brakes
Exclusive Feature: A Detailed Look At The Stratified U.S. Consumer – Via Zero Hedge – When analyzing the recovery prospects before the U.S. economy, no analysis is complete without a detailed look at the capacity of the U.S. consumer, that dynamo that has always managed to pull the economy out of whatever hole it managed to find itself over the past 80 years. However, permanent structural changes to the economy and the first credit-based recession in decades, could mean the proverbial “this time it may be different” is applicable. Furthermore, the non-homogeneous nature of the concept known as the “U.S. consumer” implies there are many different forces that will shape consumer behavior both now and for the years to come. In this article we attempt to put some of the pieces together and draw some preliminary conclusions.
Exclusive Feature: A 300-year-old example of quantitative easing – Via Economist – “IF FIVE hundred millions of paper had been of such advantage, five hundred millions additional would be of still greater advantage.” So Charles Mackay, author of Extraordinary Popular Delusions and the Madness of Crowds, described the “quantitative easing” tactics of the French regent and his economic adviser, John Law, at the time of the Mississippi bubble in the early 18th century. The Mississippi scheme was a precursor of modern attempts to reflate the economy with unorthodox monetary policies. It is hard not to be struck by parallels with recent events.
Feature: Binary Economics – An Overview – Via SSRN – Binary Economics offers a conception of economics that is foundationally distinct from the economic theories presently employed by government, private enterprise, charitable institutions, and individuals to formulate and evaluate economic policy. Because it is foundationally distinct from classical, neoclassical, Keynesian, monetarist, and socialist economics, binary economics specifically offers a distinct explanation for the persistence of poverty and suboptimal growth. First advanced by Louis Kelso, binary economics holds that (1) labor and capital are equally fundamental, independent or binary factors of production, (2) growth is most fundamentally the result of the increasing productiveness of capital and the distribution of its ownership, rather than increasing labor productivity, and (3) the more broadly capital is acquired the faster the economy will grow. Based on these principles, most binary economists conclude that universal, individual participation in the right to acquire capital with the earnings of capital (the binary property right) is a necessary condition for sustainable growth, distributive justice, and a true democracy. Binary economics reveals a voluntary market-based strategy for producing much greater and more broadly shared abundance without redistribution. As an approach to economic policy, it offers poor and working people a practical means to acquire capital with the earning of capital and other advantages not offered by left-wing, right-wing and centrist approaches.
Feature: Play the Federal Reserve Game– Via Crossing Wall St – The San Francisco Fed has created perhaps the wonkiest video game world history—it’s the Federal Reserve Game! Haven’t you always wanted to test your monetary policy skillz online? Well, now you can! Set rates too high and you’ll cause a recession. Go too low and inflation will creep up.
Feature: Madoff’s Other Legacy – Via Time – One day in fall 2007, I found myself on the 19th floor of the Manhattan skyscraper known as the Lipstick Building, listening to Bernie Madoff explain to me how he made money. This was in preparation for a discussion called the Future of the Stock Market that I was moderating; Madoff was a participant. (It’s a big hit on YouTube — just Google “Madoff video.”) Sadly, he didn’t happen to mention the now infamous Ponzi scheme he was running two floors below us. At issue was his legit business, a brokerage that had long been one of the biggest marketmakers (the firms responsible for keeping trading going) on the Nasdaq exchange.
Feature: How Optimal Group Mood Differs for Generating and Selecting Creative Business Ideas – Via SSRN -Superior entrepreneurial ideas can arise when teams have positive team dynamics that allow them to draw upon members’ diverse mental models. At the same time, creativity can be viewed as a two stage Darwinian process where alternatives are generated and then ideas are culled to select those with the greatest potential. We integrate these two observations to identify how optimal team dynamics may differ in order to excel at each stage of the creative process. Specifically, we develop theory about how the optimal group mood varies at each stage. Using data from performance on an entrepreneurial creativity task, we find that these two stages require very different collective moods, and our results suggest that some teams may fail to transition to the appropriate mood. We discuss the implications for entrepreneurial creativity.
Feature: The Confidence Heuristic – Via Overcoming Bias – In Moore’s experiment, volunteers were given cash for correctly guessing the weight of people from their photographs. In each of the eight rounds of the study, the guessers bought advice from one of four other volunteers. The guessers could see in advance how confident each of these advisers was (see table), but not which weights they had opted for.
Feature: Interactive Website: Tracking The Nation’s Bank Failures – Via Wsj
Feature: BEWARE THE RISK OF FASB – Via Pragmatic Capitalist – After getting pressured into changing the M2M rules in early April, FASB is now talking about reversing parts of the rule change. In the same way that this sent banks stock soaring in March and April we could be looking at an increasingly risky time to own bank stocks as FASB sorts out the potential rule change. This could pose as a substantial headwind for the recent bull run.
Feature: World’s Green House Gas Emissions – Via Chart Porn
1. Michael Steinhardt Discusses Israel’s Place in the World – Via Wharton -Following a high-profile career in finance in which he became one of the first well-known hedge fund managers, Michael Steinhardt began the Taglit Birthright Israel program, a philanthropic enterprise which has provided free 10-day trips to Israel for some 220,000 Jewish youth to learn more about their heritage. Steinhardt spoke with Knowledge@Wharton about how the program helps to improve the country’s image and the challenges of what he calls a deteriorating educational system in Israel — marked by a brain drain in higher education. Steinhardt also discussed the country’s culture of business innovation and how deep democratic roots can sometimes slow progress.
2. Buffett Admits Berkshire Goofed on Derivative – Via Crossing Wall St – Warren Buffett’s Berkshire Hathaway Inc underestimated the risks of falling stock prices to its billions of dollars of derivatives bets, yet still believes it is valuing the contracts fairly. Berkshire revealed its error in a June 26 letter to the U.S. Securities and Exchange Commission, one of several pieces of correspondence with the regulator about the company’s annual report, and made public on Thursday.
3. Podcast :The race between education and technology – Via Voxeu – >Lawrence Katz of Harvard University talks to Romesh Vaitilingam about his book (co-authored with Claudia Goldin), The Race between Education and Technology, a history of US economic inequality and the roles of technological change and the pace of educational advance in affecting the wage structure. The interview was recorded at the American Economic Association meetings in San Francisco in January 2009.
4. The Fractal Nature of Legal Systems? – Via Computational Legal Studies – Do legal systems have physical properties? Considered in the aggregate, do the distinctions upon distinctions developed by common law judges self-organize in a manner that can be said to have definable physical property (at least at the broad level of abstraction)? The answer might lie in fractal geometry.
5. Don’t look for the irrational in the credit crisis; we do stuff for a reason – Via Telegraph – We see many an article in the press these days declaring the death of the “naive” standard view that economic agents – borrowers, consumers, investors, firms – act rationally.
6. Is Basel II Enough? The Benefits of a Leverage Ratio – Via Karlwhelan – Recurring financial crises have become a hallmark of the modern financial system. It would seem that, every five years or so, a 100-year event destabilizes the system. Moreover, each crisis appears more violent than the previous one. With the current crisis as my showcase, I will argue that excessively high leverage has been a key factor in making banks and ultimately the financial system much more fragile and vulnerable than most observers, regulators, or market participants ever imagined. Based on this diagnosis, I will argue in favour of restricting the leverage of core financial institutions, i.e., banks. Needless to say, banks have a tendency to oppose regulation. I will therefore discuss in some detail why regulating banks’ capital is necessary and why it promotes financial stability.
7.Video : Daniel Dennett on the Situation of our Brain – Via Big Think – Daniel Dennett is the co-director of the Center for Cognitive Studies, the Austin B. Fletcher Professor of Philosophy, and a University Professor at Tufts University. Here is a brief Big Think video of Dennett discussing some of the problems of the human brain, including, the “very sharp limit to the depth that we as conscious agents can probe our own activities.”
8. Dishonesty and Emotion have a Stronger Link than We Think – Via NeuroNarrative – Let’s say that you work in an office with several people, and everyone is expected to meet certain performance standards. You’re an outstanding performer, considered one of the best in the firm. A couple offices down from you is a guy named Wendel, and you feel sorry for Wendel because he’s not quite able to meet the performance standards and is always teetering on the edge of losing his job. Your sense of Wendel is that he’s a good guy who just never gets the right breaks, and if he were given more chances to succeed he could probably pull himself out of his slump.
9. Because I’m good enough, I’m smart enough, and doggone it, people like me. – Via Social Pysh Eye – It has long been assumed that positive affirmations are the key to happiness. In fact, there are countless books, websites, and resources dedicated to encouraging people to engage in positive thinking by repeating favorable statements about the self. Oprah Winfrey, one of the most iconic social figures in the United States, often encourages her viewers to engage in self-affirmation. However, recent work has found that these practices may actually undermine self-esteem for certain people.
11. Narcissistic bosses destroy morale, drive down bottom line – Via Physorg – In recent years, the motivations of business leaders such as financier Bernard Madoff and former Enron CEO Ken Lay have come under increased scrutiny as a result of behavior that caused both their employees and the public considerable distress. Unquestionably, many of the documented lapses in judgment can be traced to selfishness and a failure to check one’s ego.
12. Infographic – The Invention And Institutionalization Of “Work” And “Home” – Via Sociological Images – The idea that work and home are in different places was institutionalized only recently in human history (and is still not reality everywhere). In early American history, most people were farmers. Both men and women worked at home. The technological advances that brought industrialization removed work from home. The factory was invented to house large machinery and many workers. Enter: wage work, the commute, and wives that “just” stayed home.
13.History of Cerebral Localization – Via Advances In History Of Pysch- The history of cerebral localization is the focus of the most recent issue of the Journal of the History of Neurosciences. An outgrowth of a World Federation of Neurology Research Group on the History of the Neurosciences Fall 2005 symposium, the issue explores the history of cerebral localization from antiquity up to the twentieth century.
14. The History of the Quantitative Methods in Finance Conference Series 1992-2007 – Via SSRN -This report charts the history of the Quantitative Methods in Finance (QMF) conference from its beginning in 1993 to the 15th conference in 2007. It lists alphabetically the 1037 speakers who presented at all 15 conferences and the titles of their papers.
15.New book brings together key papers on monetary policy – Via Cass Business School – Alec Chrystal, Professor of Money and Banking at Cass, has co-edited a book with Paul Mizen, Professor of Monetary Economics at Nottingham University, which brings together seminal papers on monetary policy since the late 1970s. Recent Developments in Monetary Policy is a two-volume set which includes previously published papers by Nobel laureates, central bankers and leading research economists.
16. Women on company boards face stockmarket prejudice – Via PhysOrg – The research suggests that shareholders respond negatively to women being appointed to their boards, causing share values to decline. This is consistent with other recent research that has examined responses to the appointment of female CEOs in the United States.
17. Independant thought is tougher than you think, but please make the effort. – Via Designing Better Futures – Please question everything, even if it is makes you seize up for a day or two. We are social animals and far less individual than we like to believe. Our greatest cage is the limitation of our perceptions of ourselves.
18. Buffett’s Berkshire Hathaway Discloses Becton Dickinson Stake Aug – Via Bloomberg – Billionaire investor Warren Buffett’s Berkshire Hathaway Inc. took a stake in Becton Dickinson & Co., as shares of the syringe and laboratory equipment maker advanced in the second quarter.
19. Infographic: Burning Fuel Average Car Vs Average Man – Via Internet Journalist
20. Martin Capital Management Fireside Report – Via Value Investing World -Although nobody seems to care at the moment, rapidly rising prices make stocks more expensive—and thus riskier. Referring to the Graham/Shiller PE (below, in the written version), as highlighted in the 2008 MCM annual report and subsequent writings, its utility as a valuation tool for long-term investors is in its design: It was constructed to smooth out short-term fluctuations in earnings by using a 10-year moving average and, because it’s a longer-term measure, the effect of inflation/deflation on both earnings and the value of the S&P 500 index is largely nullified. While Graham/Shiller states the obvious, it isn’t commonly employed as a valuation tool. Given its several indisputable bubble warnings over the last 10 years, one must presume that neither Greenspan nor Bernanke is aware of its existence.