The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

That is the current time and date, at least the way the Brits configure it (DD/MM/YY)

16.15.14 13.12.11 = 4:15 pm (13 seconds) on the 13th day of the 12 month in the 11th year of the century.

Via Businessweek, we learn that Facebook caused the Greek Debt crisis, Global Warming is caused by NSF R&D budget, and other spurious correlations:

Need to prove something you already believe? Statistics are easy: All you need are two graphs and a leading question.

Wonky amusing fun for any statistically innumerate eejit on your holiday list.

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click for larger graphic

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Source:
Correlation or Causation?
Vali Chandrasekaran
BusinessWeek December 1, 2011  
http://www.businessweek.com/magazine/correlation-or-causation-12012011-gfx.html

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Jim Mcteague discusses the surprising correlation that Democratic Presidents have had with outperforming economy and stock markets versus Republican Presidents.

He points out that Real GDP growth between 1949 and 2011 was 4.43% under Democratic presidents, while the average growth rate has been 2.43% under Republicans.

As we are so fond of reminding the innumerate masses, however, correlation does not equal causation:

Gripe as you may about President Obama and the economy, he’s been good for stocks. And if history is a guide, he’ll be just as good if re-elected. Dozens of research papers have concluded that the stock market performs noticeably better during Democratic administrations than it does during Republican ones. No one can explain exactly why this is so . . .

Market professionals have multiple theories about a president’s impact on stocks. Asset manager Barry Ritholtz, author of the highly regarded blog “The Big Picture,” says it’s a combination of luck along with a president’s response to economic circumstances.

“That is what separates the great economies from the middling ones. Look at the circumstances that met FDR, Clinton and Reagan,” he says. They all had big challenges, and met them with appropriate responses.

“Ronald Reagan had the luck to come into office in year 14 of a 16-year bear market; he also had as Fed Chief Paul Volcker, who forced a wrenching recession early in his term. But Reagan’s response to those circumstances—significant tax cuts and federal spending followed by gradual tax increases—helped add up to a booming economy,” say Ritholtz.

The whole article is worth a read.

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Previously:
Presidential Blame & Credit (November 22nd, 2011)

Source:
Democratic Market Magic
JIM MCTAGUE
Barron’s DECEMBER 3, 2011  
http://online.barrons.com/article/SB50001424052748704101304577038140162880680.html

Kevin Slavin argues that we’re living in a world designed for — and increasingly controlled by — algorithms. In this riveting talk from TEDGlobal, he shows how these complex computer programs determine: espionage tactics, stock prices, movie scripts, and architecture. And he warns that we are writing code we can’t understand, with implications we can’t control

Hat tip Flowing Data

Source:
The Unreasonable Beauty of Mathematics
Scientific American
July 26, 2011

Source:
xkcd.com, Cell Phones

I am not exactly a Hybrid kinda of guy — horsepower and handling are more my thing. And, hybrids cost extra — so much, in fact, that Hybrids take anywhere from 7-12 years to recoup the additional purchase costs and pay for themselves.

But, if I was given an option of getting the hybrid version of any car I was considering at the same exact price as the conventional gasoline version, of course I would take it.

So perhaps some behavioral economist can explain this to me:

NYT article to me:

“It’s a given that hybrids cost more than the equivalent gasoline-only models — a gap justified, automakers say, by the added cost and complexity of hybrid-drive systems. But because hybrid mechanicals are often bundled with upscale features, the difference can amount to many thousands of dollars.

For that reason, the Lincoln MKZ Hybrid stands out, offering a value proposition that is unique in the auto industry: a hybrid with the same price as its conventional gasoline counterpart.

By contrast, another product from the same company, the Ford Fusion Hybrid, carries a premium of $8,750 over a base Fusion; a Toyota Camry Hybrid is nearly $7,000 more than a base Camry . . .

Lincoln’s strategy seems to be working. About 20 percent of 2011 MKZ sales have been hybrids, compared with a forecast of about 15 percent. (In the Los Angeles region, the percentage is 44 percent; in the San Francisco area, it is an astonishing 66 percent.)”

So my question: Why isn’t this much closer to 100%? Why wouldn’t someone (even a Horsepower freak like me) take the hybrid at no additional charge?

How can basic economics — you know, that Humans are rational, self motivated, economic-decision makers — explain this behavior?

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Source:
Upwardly Mobile Hybrids: Splurging While Saving Gas
JERRY GARRETT
NYT, July 22, 2011  
http://www.nytimes.com/2011/07/24/automobiles/upwardly-mobile-hybrids-splurging-while-saving-gas.html

Not surprisingly, some of the conclusions and statements within the graphic are less than rigorous in their criticism:

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click for ginormous graphic

Interbank FX, Rise of the Algorithm
July 12, 2011

From the annals of wrong comes this article, published 6 years ago today (2005): The Housing Bears Are Wrong Again.

Here is a quick excerpt:

“Homebuilders led the stock parade this week with a fantastic 11 percent gain. This is a group that hedge funds and bubbleheads love to hate. All the bond bears have been dead wrong in predicting sky-high mortgage rates. So have all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.

None of this has happened. The Federal Reserve has effectively mopped up excess cash and calmed inflation expectations. That’s why bond rates are hovering around 4 percent, with most mortgage rates about a point higher . . .”  (emphasis added)

This is a fascinating study of how hard people fight to retain their preconceived belief system, their notions of what they already know – and what challenges that information.

Some of this may be the result of ideological bias, but I suspect most of this is a case of the Sunk Cost dilemma. When you have spent so much time and energy and money –indeed, your entire professional career — acquiring information and a supporting belief system, it is rather challenging to reverse course from that.

Hence, the difficulty in getting someone to recognize events that are outside oft heir experience. Consider this paragraph:

Meanwhile, the homebuilders index has increased 76 percent over the past year, with particularly well-run companies like Toll Brothers up about twice as much. The bubbleheads missed all this because they haven’t done their homework. If they had put a little elbow grease into their analysis, they would have learned that new-housing starts for private homes and apartments haven’t changed much during the past three and a half decades.

If you looked at home-building relative to Income, or to Household Formations, or to GDP, by 2005 it had was already 2 standard deviations away from the historical mean. It is very challenging to convince people what the norm is int he midst of bubble. And in 2005, we were in the middle of the world’s biggest credit bubble.

What fascinates me is how reasonable the arguments against the bubble sound. Read the whole article without the benefit of knowing how it all crumbled, and you will find it is surprisingly persuasive — just as the housing boom reached its peak.

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Source:
The Housing Bears Are Wrong Again
This tax-advantaged sector is writing how-to guide on wealth creation.
Larry Kudlow
National Review, June 20, 2005
http://article.nationalreview.com/276028/the-housing-bears-are-wrong-again/larry-kudlow