In a forthcoming issue of 'Human Nature' is an article 'Mathematical talent is linked to autism'. It includes discussion of the Viennese pediatrician Hans Asperger, for whom the condition is named. The syndrome, to various degrees, appears to be common in those successful in art and science, including mathematics.
Given that there is a great social need for such talent, and that it appears to be strongly genetic in origin - should we start a breeding program?
Tuesday, March 24, 2009
Monday, March 23, 2009
When the music stops, a dollar collapse?
Brad Setser's analysis is that Americans have been repatriating their dollars even faster than foreigners have been getting rid of theirs:
"Words cannot really capture the sheer violence of the swings in private capital flows that somehow produced a a rise (net) private demand for US financial assets."
At some point, the balance of these cross-currents will change, and then? Maybe the turning point will come when Americans are forced to sell financial assets to meet living expenses and medical costs.
Meanwhile, Tim Iacono comments on a proposal to substitute the dollar as the world's reserve currency, with drawing rights from the IMF, i.e. a mixed bag of currencies. China's central bank seems terribly keen.
I have a sense of something being held up, but not for ever.
"Words cannot really capture the sheer violence of the swings in private capital flows that somehow produced a a rise (net) private demand for US financial assets."
At some point, the balance of these cross-currents will change, and then? Maybe the turning point will come when Americans are forced to sell financial assets to meet living expenses and medical costs.
Meanwhile, Tim Iacono comments on a proposal to substitute the dollar as the world's reserve currency, with drawing rights from the IMF, i.e. a mixed bag of currencies. China's central bank seems terribly keen.
I have a sense of something being held up, but not for ever.
Let's move to Russia
I've said it before: you get the clearest explanations from someone who is in a hurry to move on to something else. Here is Dmitry Orlov on why Russia will survive:
It seems that the Russians are better-equipped to survive financial collapse than just about anyone else. They have formidable reserves of gold and foreign currency to soften the downward slide. They have a dwindling but still sizable endowment of things the world still wants, even if at temporarily reduced prices. They have plenty of timber and farmland and other natural resources, and can become self-sufficient and decouple themselves economically should they choose to do so. They have high-tech weaponry and a nuclear deterrent in case other nations get any crazy ideas. After all the upheavals, they have ended up with a centrally-managed, natural resource-based, geographically contiguous realm that is not overly dependent on global finance. Yes, the Russian consumer sector is crashing hard, and many Russians are in the process of losing their savings yet again, but they have managed to survive without a consumer sector before, and no doubt will again.
I'm almost tempted to live there. My grandparents' farm, overrun by the Red Army in 1945, is somewhere in that weird, tiny sliver of the Russian Federation stuck between Poland and Lithuania like a stone in your shoe. I'd need a heavily-armed gang to take the farmhouse back from whoever took it over after the hick troops stole everything in it. But maybe it's not there any more - probably it's covered with concrete now, the tyrant's material of choice. Still, life goes on; it's outlasted communism and looks set to outlast Western capitalism.
Though I should say that in the UK, the nutso socialist element must be seeing this as an opportunity to start the Millennium. I have been wondering whether it's possible to take American citzenship while continuing to live here, so that I might have some residual civil rights when my neighbours have lost theirs.
America, see the issue for what it is: not money, but democracy and freedom.
It seems that the Russians are better-equipped to survive financial collapse than just about anyone else. They have formidable reserves of gold and foreign currency to soften the downward slide. They have a dwindling but still sizable endowment of things the world still wants, even if at temporarily reduced prices. They have plenty of timber and farmland and other natural resources, and can become self-sufficient and decouple themselves economically should they choose to do so. They have high-tech weaponry and a nuclear deterrent in case other nations get any crazy ideas. After all the upheavals, they have ended up with a centrally-managed, natural resource-based, geographically contiguous realm that is not overly dependent on global finance. Yes, the Russian consumer sector is crashing hard, and many Russians are in the process of losing their savings yet again, but they have managed to survive without a consumer sector before, and no doubt will again.
I'm almost tempted to live there. My grandparents' farm, overrun by the Red Army in 1945, is somewhere in that weird, tiny sliver of the Russian Federation stuck between Poland and Lithuania like a stone in your shoe. I'd need a heavily-armed gang to take the farmhouse back from whoever took it over after the hick troops stole everything in it. But maybe it's not there any more - probably it's covered with concrete now, the tyrant's material of choice. Still, life goes on; it's outlasted communism and looks set to outlast Western capitalism.
Though I should say that in the UK, the nutso socialist element must be seeing this as an opportunity to start the Millennium. I have been wondering whether it's possible to take American citzenship while continuing to live here, so that I might have some residual civil rights when my neighbours have lost theirs.
America, see the issue for what it is: not money, but democracy and freedom.
Sunday, March 22, 2009
What am I missing?
I am just a mathematician, so my evaluation of economic models is restricted to the analysis of the equations. However, it seems to me that, in a perfect transaction, the selling price must be at least the value to each party.
Clearly, the value to the buyer must be greater than that to the seller. This is usually achieved by adding value. For example, a manufacturer purchases raw materials, or a wholesale merchant moves goods to where the buyers are.
That being said, I do not see where the added value is in the investment market, for a typical investor. The present value of future earnings and stock price are the same for both sellers. The only reason for the purchase is then an imagined increase in price beyond inflation, i.e. finding a bigger sucker.
Is the whole system just a house of cards?
Clearly, the value to the buyer must be greater than that to the seller. This is usually achieved by adding value. For example, a manufacturer purchases raw materials, or a wholesale merchant moves goods to where the buyers are.
That being said, I do not see where the added value is in the investment market, for a typical investor. The present value of future earnings and stock price are the same for both sellers. The only reason for the purchase is then an imagined increase in price beyond inflation, i.e. finding a bigger sucker.
Is the whole system just a house of cards?
Saturday, March 21, 2009
Fractional reserve speculation
Fractional reserve lending, as "Sonus" explains so clearly here, became possible when people accepted receipts for gold as payment, instead of insisting on having the gold itself. This opened up an exciting opportunity for the guardians of gold and silver; they could issue receipts for which there was no gold or silver at all, and get other people to accept them as payment. Then we ended up with a world in which you could borrow money that didn't exist, but when the scam burst, you'd have to pay it back with the roof over your head. Now there are voices calling for the return to money actually backed by something that might limit its growth; this will pass.
In much the same way, speculation in shares has changed. Once, investor A bought a share in a company from B, held it and received dividends. But the financial market exploded when it became possible to trade in shares without actually having the certificates.
Speculator C can "short" a share - agree to sell it to A (without yet having ownership) for $1, later buy it from B at 5oc (he fervently hopes), then when settlement time comes, A ends up with the share and C pockets the profit less trading expenses. (C can also "go long": agree to buy a share from B at 50c, sell it to A for $1 later, then comes settlement time when the share ownership is officially transferred).
C can multiply his bet if he trades "on margin", in effect making only a small down payment on his share speculation. If the margin is 10%, then he can (promise to) buy or sell 10 times as many shares, and (if his judgment is right), make 10 times the profit when settlement is made.
C experiences success in conditions of a bull market and expanding money supply. C is now trading in big, big quantities, with shares he doesn't own for most of the time, and cash he mostly doesn't have. C has gone beyond mere shares, and is simply betting on movements in the market. C has become a trader in derivatives; in effect, a high-rolling gambler. What a wonderful world! So much nicer than the school he went to! C has an abundance of worldly goods, worldly girlfriends and envious colleagues who laugh at his jokes. C has taken to introducing himself on the phone as "Nick with the big swinging d*ck". C is young, and has never known things to be different. C is complacent; C has become reckless.
But oh dear, if some of his enormous bets go wrong. C has losses, multiplied by the inverse of his margin, plus his trading expenses. Maybe C doesn't have enough money in his account to cover his losses. Maybe C has been trading with another gambler, D, and now can't pay him. Suddenly D is in trouble, too. And both have also been playing around the green baize with traders E, F and G; maybe with the whole alphabet of gamblers, maybe with the Greek and Cyrillic alphabets too.
But before he busts himself (and possibly his employer into the bargain), C has influence (since it is known that he never gets it wrong - until the day he does): news of his bets affect the market, especially when the market is nervous. When C shorts a share big-time, he can start a run - even if the company was basically OK before then.
Which is why Denninger is now calling for a return to the custom of getting the stock certificate when you buy the stock.
Good luck with that; and with ending fractional reserve banking. Denninger argues against the latter here, and prefers a system of minimum cash margins; perhaps it would be more logically consistent if he advocated the same for short-selling.
Personally, I'd go for whipping the money-changers out of the temple; but they always return.
In much the same way, speculation in shares has changed. Once, investor A bought a share in a company from B, held it and received dividends. But the financial market exploded when it became possible to trade in shares without actually having the certificates.
Speculator C can "short" a share - agree to sell it to A (without yet having ownership) for $1, later buy it from B at 5oc (he fervently hopes), then when settlement time comes, A ends up with the share and C pockets the profit less trading expenses. (C can also "go long": agree to buy a share from B at 50c, sell it to A for $1 later, then comes settlement time when the share ownership is officially transferred).
C can multiply his bet if he trades "on margin", in effect making only a small down payment on his share speculation. If the margin is 10%, then he can (promise to) buy or sell 10 times as many shares, and (if his judgment is right), make 10 times the profit when settlement is made.
C experiences success in conditions of a bull market and expanding money supply. C is now trading in big, big quantities, with shares he doesn't own for most of the time, and cash he mostly doesn't have. C has gone beyond mere shares, and is simply betting on movements in the market. C has become a trader in derivatives; in effect, a high-rolling gambler. What a wonderful world! So much nicer than the school he went to! C has an abundance of worldly goods, worldly girlfriends and envious colleagues who laugh at his jokes. C has taken to introducing himself on the phone as "Nick with the big swinging d*ck". C is young, and has never known things to be different. C is complacent; C has become reckless.
But oh dear, if some of his enormous bets go wrong. C has losses, multiplied by the inverse of his margin, plus his trading expenses. Maybe C doesn't have enough money in his account to cover his losses. Maybe C has been trading with another gambler, D, and now can't pay him. Suddenly D is in trouble, too. And both have also been playing around the green baize with traders E, F and G; maybe with the whole alphabet of gamblers, maybe with the Greek and Cyrillic alphabets too.
But before he busts himself (and possibly his employer into the bargain), C has influence (since it is known that he never gets it wrong - until the day he does): news of his bets affect the market, especially when the market is nervous. When C shorts a share big-time, he can start a run - even if the company was basically OK before then.
Which is why Denninger is now calling for a return to the custom of getting the stock certificate when you buy the stock.
Good luck with that; and with ending fractional reserve banking. Denninger argues against the latter here, and prefers a system of minimum cash margins; perhaps it would be more logically consistent if he advocated the same for short-selling.
Personally, I'd go for whipping the money-changers out of the temple; but they always return.
Friday, March 20, 2009
Gold: the tide is turning
Julian D. W. Phillips maintains that central banks are beginning to restock their reserves of gold.
Private hoards of the yellow metal are beginning to rival national ones: the world's largest gold ETF, SPDR, is well into the top 10 - Bloomberg reports it's now overtaken Switzerland. But there is some question of how much of SPDR's holdings are actual physical gold.
Gold doesn't earn interest, which is one reason why China hasn't yet (apparently) leapt in, though Commodity Online says that country has been considering it.
Some say that the Chinese government likes to declare policy changes via apparently unofficial sources. It's worth noting that the China Gold Association called last November for an expansion of national holdings of gold beyond its present level of 600 tonnes.
China's recent switch from Agencies (local and State bonds) to Treasuries, and from long-dated Treasuries to short-dated ones, seem to indicate contingency planning for a worst-case scenario in which the US loses control of its budget and money supply.
The motivation to plan for the worst, is high. China's official holding of US debt, large as it is, is understated, according to Brad Setser, who believes that much of the investment in US Treasuries by the UK and Hong Kong are actually on behalf of China.
In the same way, I can imagine that China might wish to hedge its bets on America by quietly boosting its gold purchases, using intermediaries to take positions in large gold investment funds. This would be a typically quiet and indirect way to improve its own security without making open moves that could panic the market. And the funding for these purchases might come from selling US/UK government bonds back to us, thanks to "quantitative easing".
What's sauce for the goose, is sauce for the gander.
Private hoards of the yellow metal are beginning to rival national ones: the world's largest gold ETF, SPDR, is well into the top 10 - Bloomberg reports it's now overtaken Switzerland. But there is some question of how much of SPDR's holdings are actual physical gold.
Gold doesn't earn interest, which is one reason why China hasn't yet (apparently) leapt in, though Commodity Online says that country has been considering it.
Some say that the Chinese government likes to declare policy changes via apparently unofficial sources. It's worth noting that the China Gold Association called last November for an expansion of national holdings of gold beyond its present level of 600 tonnes.
China's recent switch from Agencies (local and State bonds) to Treasuries, and from long-dated Treasuries to short-dated ones, seem to indicate contingency planning for a worst-case scenario in which the US loses control of its budget and money supply.
The motivation to plan for the worst, is high. China's official holding of US debt, large as it is, is understated, according to Brad Setser, who believes that much of the investment in US Treasuries by the UK and Hong Kong are actually on behalf of China.
In the same way, I can imagine that China might wish to hedge its bets on America by quietly boosting its gold purchases, using intermediaries to take positions in large gold investment funds. This would be a typically quiet and indirect way to improve its own security without making open moves that could panic the market. And the funding for these purchases might come from selling US/UK government bonds back to us, thanks to "quantitative easing".
What's sauce for the goose, is sauce for the gander.
Thursday, March 19, 2009
Hold dollars?
Karl Denninger argues that the failed stimulus will lead to accelerating deflation in the US. His prediction is that demand for the dollar will soar and other currencies will collapse instead. He thinks this will hit US exports and the economy will be crippled, so Americans need to hold in-the-hand folding money - lots of it, maybe a year or two's basic expenses! - away from the bank.
He may be on the wrong medication - the current state of the world's finances is a great impetus towards paranoia and depression; but if he's even half right, we need to start making those quiet, regular cashpoint withdrawals and (for non-Americans) visiting the bureau de change. And not living in the city.
He may be on the wrong medication - the current state of the world's finances is a great impetus towards paranoia and depression; but if he's even half right, we need to start making those quiet, regular cashpoint withdrawals and (for non-Americans) visiting the bureau de change. And not living in the city.
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