Posts filed under “Think Tank”

Memories, Light the Corners of My Mind

“Memories, like the corners of my mind. Misty water colored memories, of the Way We Were,” sang Barbra Streisand and I’ll be humming the song as Bernanke gives a speech today titled “Reflections on a Year of Crisis” at 10am from Jackson Hole. Unfortunately the trip down memory lane won’t begin in mid ’03 when Bernanke stood with Greenspan in cutting rates to 1% and didn’t change policy until mid ’04. We thus won’t get a full picture from Bernanke of what has unfolded. It’s ironic that the man who helped to spark the fire is now looking for accolades because he has temporarily put it out. I’m fully aware of the dire straits we faced in Oct/Nov but I just want full disclosure of the record. Oh well, sorry to whine about this, again. While most of Asia was lower, China bounced for the 3rd day in 4 even though there was talk of an upcoming hike in reserve requirements. Existing Home Sales, 85% of the housing market, are expected to total 5mm in July and would be the highest level since Sept ’08.

The Euro region manufacturing and services composite index rose to 50 from 47 and was 2 points higher than expected. It has reached the breakeven level of expansion and contraction for the first time since May ’08. The services component mostly led the way as it rose 3 points to 49.5 while manufacturing rose just .4 points to 47.9. I can’t explain why the headline index reached 50 while the two individual components did not other than to say that maybe it’s a separate measure of sentiment. In particular, manufacturing in France rose above 50 as did services in Germany. In response, the Euro is rising to a two week high vs the US$ and European stocks are up across the board. This bounce in turn is helping the S&P’s ahead of August expiration. However, the 10 yr bond yield at a 5 1/2 week low continues to send a different message on the US economy than stocks are.

Category: MacroNotes

JD Power quantifies the impact of the Clunker program

J.D. Power and Associates today is quantifying in their estimation the impact on auto sales this year due to the clunker program and the extent that it steals sales from 2010. They said that based on data seen thus far, August will see the first 1mm+ unit sales (includes fleet sales) month since last year….Read More

Category: MacroNotes

Bob Novak (1931-2009), The Last Reporter

My father Richard Whalen was a long time friend and contemporary of Robert Novak, whose funeral is tomorrow in Washington.  I knew Bob and his family growing up in Washington and even went on some memorable fishing trips off of Ocean City, MD.   Dad wrote the following remembrance of Bob earlier this week.  — Chris

By Richard Whalen

I knew Bob Novak for almost fifty years.  I first met him in Washington, D.C. when he was a member of the Wall Street Journal Washington’s bureau and I was a New York based Wall Street Journal editorial writer assigned to write an editorial page article on Republican politics.  Bob, defending his Washington turf, asked me what I was doing in DC.  After shouting at each other, we had a drink and then another and a third and by that time, Bob helped me outline my piece.  We became great friends – best friends.

As the media elite emerged as part of Washington’s permanent government in the 1970s, Bob was at the center of it, but he resisted the social phoniness like a true son of the working class from Joliet, IL.  He was determined to keep the realistic perspective of his father, an intelligent small businessman who was quietly proud of his celebrated son. .Bob was in the special category occupied earlier by Arthur Krock, David Lawrence and Walter Lippmann. He was not a pundit but a hard-nosed, hard-working, shoe leather reporter whose sources ranged wider and deeper than anybody else’s. He distilled truth from depths of fresh reporting.
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Category: Think Tank

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…Read More

Category: Mathematics, Think Tank

Philly Fed survey

The August Philly Fed survey came in at +4.2, above the consensus of -2.0, up from -7.5 in July and follows the unexpected gain in the Empire survey seen on Monday. It’s the first positive reading since September ’08 and is at the highest level since November ’07. The data measures the direction of improvement,…Read More

Category: MacroNotes

Jobless Claims data

Initial Jobless Claims totaled 576k, 26k more than expected and up 15k from the prior week which was revised up by 3k. This brings the 4 week average up to 570k from 566k. Continuing Claims were 26k more than estimated and up 2k from last week. The insured unemployment rate was 4.7%, unchanged with the…Read More

Category: MacroNotes

What do Buffett, Keynes, and Fleckenstein Have in Common?

Good Evening: Just when it looked as if the U.S. stock market would resume the Friday/Monday slide today, share prices pulled out of a morning nosedive to finish higher for a second straight session. Rising energy prices and a falling dollar both aided this light volume turnaround, with the latter receiving quite a bit of…Read More

Category: Markets, Think Tank

Systemic Risk: Is it Black Swans or Market Innovations?

Below is the latest comment from the Institutional Risk Analyst. My former Fed colleague Dick Alford came up with the idea, then Dennis and I revised and extended.  Enjoy and have a great August.  — Chris

Systemic Risk: Is it Black Swans or Market Innovations?
The Institutional Risk Analyst
August 18, 2009

“Whatever you think you know about the distribution changes the distribution.”

Alex Pollock
American Enterprise Institute

In this week’s issue of The IRA, our friend and colleague Richard Alford, a former Fed of New York economist, and IRA founders Dennis Santiago and Chris Whalen, ask us whether we really see Black Swans in market crisis or our own expectations. Of note, we will release our preliminary Q2 Banking Stress Index ratings on Monday, August 24, 2009. As with Q1, these figures represent about 90% of all FDIC insured depositories, but exclude the largest money center banks (aka the “Stress Test Nineteen”), thus providing a look at the state of the regional and community banks as of the quarter ended June 30, 2009. Click here to register for The Institutional Risk Analyst or request a trial for our products.

Many popular explanations of recent financial crises cite “Black Swan” events; extreme, unexpected, “surprise” price movements, as the causes of the calamity. However, in looking at our crisis wracked markets, we might consider that the Black Swan hypothesis doesn’t fit the facts as well an alternative explanation: namely that the speculative outburst of financial innovation and the artificially low, short-run interest rate environment pursued by the Federal Open Market Committee, combined to change the underlying distribution of potential price changes. This shift in the composition of the distribution made likely outcomes that previously seemed impossible or remote. This shift in possible outcomes, in turn, generated surprise in the markets and arguably led to the emergence of “systemic risk” as a metaphor to explain these apparent “anomalies.”

But were the failures of Bear Stearns, Lehman Brothers, Washington Mutual or the other “rare” events really anomalous? Or are we just making excuses for our collective failure to identify and manage risk?

The choice of which hypothesis to ultimately accept in developing the narrative description of the causation of the financial crisis has strategic implications for understanding as well as reducing the likelihood of future crisis, including the effect on the safety and soundness of financial institutions. To us, the hard work is not trying to specifically limit the range of possibilities with artificial assumptions, but to model risk when you must assume as a hard rule, like the rules which govern the physical sciences, that the event distribution is in constant flux.
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Category: Regulation, Think Tank

$/stocks, changing correlation

Since September ’08 when the Lehman bankruptcy put global deleveraging into overdrive, all major asset classes had a certain correlation, sell stocks, corporate bonds, commodities, and foreign currencies and buy US Treasuries and the US$. Looking at the S&P/US$ relationship since September, thus going back 50 weeks, only 11 weeks (22%) saw a positive correlation…Read More

Category: MacroNotes

September!!!! Also, Closing the Lehman Gap

David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from…Read More

Category: Think Tank