Thursday, May 20, 2010

Thought for food

I am finding a certain sick schadenfreude(check it out, it's a sweet word) watching the markets tumble and surge. As of 10:27 a.m. central time the Dow is down 256 points. While oil, the Euro and most other commodities continue to tumble, the dollar is surging. It's nice to see that investors have so much confidence in the U.S. economy, but they are driving up the price of exports in doing so. While I know that trade deficits are not a competition, I would feel better seeing the gap shrink a bit.

I also can't wait to see the price of gold fall. It is obviously far to inflated and has been increasing in value due to speculation and market volatility. I never understood why it became so popular? If people wanted safer waters during the great recession, why not purchase bonds or t-bills with a guaranteed rate of return instead of a commodity highly susceptible to speculative price inflation.
I suppose what it comes down to is my view that markets, while rational in times of relative stability, are susceptible massive irrationality or behavior in times of economic uncertainty. Just as a herd of water buffalo will trample each other at the first sign of a lion, markets will over speculate prices causing massive bubbles and busts. Take for instance the Mandelbrot study of cotton prices over a period of time, he came up with fat tails. According to rationalists, markets should fall neatly into rational models.

On average, the market will move a little up, a little down, or stay about the same. Of course there will be days where the markets surges or plunges, but thats ok because this is a rarity and according to the law of large numbers, should only occur once in a blue moon. But to have consecutive days, weeks, months of massive drops is somewhere in the neighborhood of 27 standard deviations out of the bell curve. Imagine flipping a coin 5,000 times and getting heads every time. Now look at the model below, the top represents the fat tails that Mandelbrot warned us about and the bottom represents a rational market, which one looks more like the Dow?

If anything can be learned it's that prices will never continue to rise without speculation fueling a boom and bust. When the boom comes, people will trample each other to ride the surging prices for ever increasing profits and when prices began to come down the selling will rocket prices to artificially low levels.

Just some musing about the economy... thanks for sticking with me on this one.

Dutch Man

Thursday, May 13, 2010

Really? I mean REALLY?

I usually don't get to fired up by what I hear on the punditry faux news hours, especially about domestic issues, but once in awhile they can get under my skin. Recently, Glenn Beck compared the Peace Corps, Americorps and the Foreign Service to..... drum roll please.... The Nazi SS.

Can we please stop comparing everything to Nazi Germany? The new AZ immigration law is not like Nazi Germany, Health Care Reform is not like Nazi Germany and the freaking PEACE CORPS is not like the SS.

While I can fall subject to hyperbole once in awhile, I mostly maintain an even keel (I leave the rants and raves to Red, she's much more adept at haranguing the pundits then I am). The problem here is using such unhinged comparisons. By juxtaposing every major new change to the Nazis, it is immediately impossible to make any kind of compromise. Simply put, it is divisive. As both parties paint themselves into corners, I find it harder to straddle the middle as I have done for so many years. When will cooler heads prevail?

Red recently spent Mother's Day and her Mother's Birthday up in North West Texas. Left to my own devices, I spent most of my time tidying up, researching OA online material and treating myself to a steak dinner. Apart from that I have been a bit of a gym rat, choosing to divide my time between cranking out the miles on a stationary bike or throwing around some weights. Finally, all the lactic acid has worked its way out of my muscles and I am slowly but surely adding minutes and pounds to each new work out.

Red's brother in law Roark (He's an architect and likes Ayn Rand, I'm sure you get the reference) is graduating this weekend so we are headed back out to east Texas for some R&R. I'm looking forward to getting out of the city for a few days.

In some other sad news, Downtown just learned that she won't be leaving for Peace Corps until at least September. While it will be nice to have her around for awhile longer, I feel bad that she has to reorganize her life again. The upside is that her new host country will be one of the following: Azerbaijani, Macedonia, Morocco and Mongolia. Awesome possibilities and she even has the coveted holy grail of PC countries, Morocco.

All for now.

Dutch Man