Posts filed under “Mathematics”

BiModality of Markets: Why Mean-Variance Doesn’t Work

Via Bob Bronson, we get this very interesting way to think about the potential universe of market returns:

In addition to the almost universally improper use of the correlation function that we have presented before (our Correlation Puzzle is available on request), Alpha-Beta, Efficient Frontier, Black Scholes, VaR, stochastic modeling, and exotic derivatives from Modern Portfolio Theory and Post-Modern Portfolio Theory also variously depend on security returns being “normally” distributed, but it is demonstrable that they are not for any capital market over any time scale.

Don’t confuse the distribution of returns on a log-scale versus an arithmetic scale – see those chart comparisons further below. A common mistake made by many, especially on internet blogs, is not understanding the huge application difference between application of logarithms and percentages. A good example is the systemic drift with index funds and ETFs, especially the high (beta) multiple inverse ones.

bimodality

Category: Mathematics, Think Tank

Quote of the Day: Better Earnings

Stephanie Pomboy of MacroMavens observes: “Judging by the giddy delight investors have taken in ‘better’ earnings news over the last two weeks, we expect they will positively wet themselves when they get a load of the new saving stats.  I mean the prospect that dis-saving was never as bad… and that current saving is even…Read More

Category: Earnings, Mathematics

GDP Worse, Not Better,Than Expected

Bill King notes in the Think Tank that GDP was actually worse than consensus expected. How is a minus 1% worse than a minus 1.5% ?  He looks at the first half of 2009, and blames the Q1 revisions: “We will again utilize basic math to illustrate the scam. If Q4 08 GDP was 100…Read More

Category: Data Analysis, Economy, Mathematics

King Report: GDP Follies

> The GDP report last Friday evinces the folly of US government economic statistics and Wall Street consensus analysis. Most of the Street heralded the 1% decline in Q2 GDP because it was 0.5 better than consensus – even though the US government admitted in the release that its GDP estimates over the past several…Read More

Category: Data Analysis, Economy, Mathematics, Think Tank

Challenge to Jim Cramer: Let’s Talk About Banks!

I notice that Jim Cramer is yowling on TheStreet.com today, pounding the table on US Bancorp (NYSE:USB) and Webster Savings Bank (NYSE:WBS).  Jim, how much you want to buy?  These institutions are going to be shoveling money into the furnace for another 3-4 quarters.  We’ll have a post up on TBP tomorrow on our view…Read More

Category: Investing, Mathematics

FASB Discovers Own Cojones

Make that belatedly. America’s previously neutered accountants — traditionally, green-visored chickenshit-cowards who have rolled over for their belly rubs from America’s CEOs and CFOs, giving them all of the bullshit they asked for over the past 2 decades — seem to be developing a spine of sorts. Recall that in the midst of the credit…Read More

Category: Earnings, Mathematics, Regulation

Overstating Bailout Costs

“The total potential federal government support could reach up to $23.7 trillion.” -Neil Barofsky > Yesterday, we noted that the 23 Trillion dollar bailout was a “WTF number.” The statement above really turns on your definition of the word “Support” — this is not the actual costs, but more of a measure of the total…Read More

Category: Bailouts, Mathematics

750 Million Albums is an Off The Wall Number

No, Michael Jackson did not sell 750 million albums. A funny thing happened to Michael Jackson’s sales figures over the past few years: They seemed to have more than tripled: “In the last three years of his life, long after the release of his final original album, Michael Jackson’s career album sales took a curious…Read More

Category: Mathematics, Music

SEC’s Shapiro: Ratings Agencies Need Supervision

Encouraging comments from SEC chair Mary Schapiro: “The Securities and Exchange Commission has created a new group of examiners to oversee credit rating agencies, which came under sharp criticism for their role during the financial crisis. The SEC has already adopted a number of measures to increase transparency at credit rating agencies, which are paid…Read More

Category: Bailouts, Earnings, Mathematics

Why Should You Care If Economists Raise U.S. Outlook ?

Look, let’s not beat around the bush: Wall Street economists, as a group, well, they suck. Most of them did not see the crisis coming; many were deep in denial about the recession long after it started. They missed the housing boom and bust, the credit crisis. They continued to see phantom bottoms and false…Read More

Category: Economy, Mathematics, Psychology