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• Weekend Readings: Chess, Rhodes Scholars, Trade, etc.
• Readings: Lawyers, Wealth, and Rare Earths
• Isildur1 and the Week That Changed Online Poker
• The Rise and Fall of Empires
• Everything is Viral -- Even the Things That Aren’t

 

Racehorse Prices in Freefall

There are some eye-popping numbers being posted in the current annual Keeneland auction for yearling thoroughbred horses. But they aren’t the usual kinds of numbers, with gross auction revenues 41% below last year’s total, and average prices 36% below last year’s.

It is a buyer’s market, assuming you have $500,000 to $1-million you want to spend on a top racehorse. Check the following figure to compare gross auction revenues at Keeneland’s annual yearling auction since 1994.

As a bubble-ish aside, how many of the top ten all-time yearling auction prices at Keeneland were obtained since 2004? Care to guess? Seven – all between 2004 and 2007. 

 

Drive-By Economics: Add Data Points Here

If people have data points to add, it feels like a good time to post some drive-by economics. What are you seeing around you in terms of economy activity? Are stores empty or crowded? Houses selling? Freeways full/empty? Post it here.

I’ll start:

• San Diego freeways remain relatively open, with traffic much less than a year ago as judged by travel times at peak hours.
• My favorite local sushi restaurant is crowded at lunch again, for the first time in a year. The sushi chef says lunch business is way up, and dinner traffic is at levels that has him smiling.
• I am seeing the odd “Sold” sign in the area, for the first time in a year. Many properties still not moving, but the odd one is finally selling.
• There are multiple construction/renovation projects going on at homes in the area, again for the first time in more than a year.
• Airplanes are packed, but are still running on time. This means, to my way of thinking, that while travel is up, the schedules remain reduced.
• Last week’s Santa Ana in San Diego gave birth to more than a dozen (small) fires. In general, near-urban wildfires are highly correlated with unemployment.
• The recent uptick in IPOs had people asking me about upcoming “hot” IPOs. I can’t remember how long it is has been until I’ve had that happen.
• My golf instructor says business is still very soft and unpredictable. The recent LPGA tournament at Torrey Pines was an attendance bust.

Add your own data points in comments.

 

I Want a Riot of My Own

White riot - I wanna riot
White riot - a riot of my own
White riot - I wanna riot
White riot - a riot of my own
   - “White Riot”, by The Clash (1977)

While you may want an anti-globalization riot of your own, your experience of anti-government demonstrations is highly predicated on birth year.

Source:

Michael Ehrmann and Panagiota Tzamourani, “Memories of High Inflation,” SSRN eLibrary (September 23, 2009), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1476196.

 

History, Path Dependency and Inflation/Deflation Fears

I have argued in various talks over the past year that one reason we got into so much trouble over the last decade is that memories of the Great Depression faded. Similarly, I’m fond of pointing out that the U.S. preoccupation with deflation stems from its most traumatic financial experience in the last hundred years, while the European worry about inflation stems from its most traumatic financial experience in the same period.

It is classic path dependency, with how we got here dictating our response to crises. How long, however, until worries about prior price episodes fade and become less binding? When do we need to worry about our collective capacity to remember the past?

A new paper tries to work out an answer, looking at birth year and inflation worries worldwide. The result is a kind of birth-cohort path dependency, with date of birth and experienced inflation trauma conspiring to hardwire some generations’ brains to fret about the future, while others putter on oblivious.

MEMORIES OF HIGH INFLATION
by Michael Ehrmann and Panagiota Tzamourani

Abstract:

Inflation has been well contained over the last decades in most industrialized countries. This implies, however, that memories of high inflation are likely to fade, because over time larger parts of the population have never experienced high inflation, whereas those who have might forget. This paper tests whether memories of high inflation affect agents’ preferences about the importance attached to price stability, using a large database covering over 52,000 survey responses from 23 countries over the years 1981-2000. It finds that memories of hyperinflation are there to last, whereas those of less drastic inflation experiences tend to erode after around 10 to 15 years. The recent decline in the importance attached to price stability does therefore most likely reflect mitigated inflation concerns in an environment of low and stable inflation, but also the consequences of fading memories of high inflation. The longer central banks have successfully delivered price stability, the more important it is for them to engage in a proactive communication, especially with the younger generations, about the merits of low and stable inflation.

 

Source:

Michael Ehrmann and Panagiota Tzamourani, “Memories of High Inflation,” SSRN eLibrary (September 23, 2009), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1476196.

 

Readings

A few articles worth reading from my weekly column:

• Global IPOs surged in Q3; U.S. at highest level in two years (Reuters)
• FDIC Is Broke, Taxpayers at Risk, Bair Muses: Jonathan Weil (Bloomberg)
• Wells Fargo: Ready To Blow? (CFO)
• A Solar-Powered Home, Without the Bulky Panels (NYTimes)
• The Man Who's Beating Google (Forbes)

 

The Tiger Factor? Not What It Once Was

I'd wager the following is not the case now, but it would be interesting to see by how much the Tiger intimidation factor has fallen from peak.

On average, players who were paired with [Tiger] Woods during the 1998-2001 period scored 0.462 strokes per round worse than normal.

 

Fisking Scientific American on Oil

My friend Gregor Macdonald has up a nice and intemperate comment debunking the recent Scientific American article on technology and oil supplies:

I have now read the Scientific American article. It is perhaps one of the more, if not the most insidious of the recent media pieces on peak oil, in that it leverages the truth about technological advances in oil exploration and extraction to create a falsehood: that these technological advances increase aggregate flows in world supply. It was bad enough that the NYT piece invoked Kashagan as an example--a howler of an example really--because of course Kashagan was discovered in 2000 and not a drop of oil will flow until 2014 (at huge expense and after many western oil cos have abandoned the project after huge losses). That the NYT would invoke Kashagan as an example of recent discoveries is almost absurdist. 

The Sci-Am article also trades on one of the most common, recurring misunderstandings and that has to do with scale. In other words, we are always finding new oil and we have to find new oil because we are losing at least 4 Mb/day each year to decline. So we have to not only find new oil, but we have to develop it and get it flowing each year to make up for existing decline. Sci-Am is reporting on technology advances that have been used for years, but, then very inaccurately runs those advances like a stupid battering ram against peak oil. Which is about peak flows, not peak reserves. 

It was a truly astonishing article. Any article that conflates reserves and flows is incompetent. The treatment of California and Alberta in particular in the Sci-Am article was so misleading as to be a textbook example of statistical and polemical obfuscation. California oil production peaked in 1986 at over 1.2 Mb/day and is now at half that rate. To lead the reader into thinking that something new is coming for California is quite the dereliction of journalistic duty. Alberta has billions of bbls of oil but would that stop, for example, a US politician from claiming we can increase flows of tar sand oil quite alot, from Alberta? No, but one would have expected something better than a politician's approach to a real problem from a magazine that uses the word Science in its title. 

So just to wrap-up here: both the NYT and the Sci-Am articles would have been fine had neither tried to leverage their reporting on discoveries or technologies to refute peak oil (peak flows). Once each article did that, a new systemic and geological problem was being invoked that neither article addressed in any way. It was fallacy of composition at the very least, and laughably but even willfully misleading at the worst.

 

Saudis and Oil Supply: Ghawar What?

There was a long interview with Saudi oil minister Ali Al-Naimi last night on NBR. While there was much inconsequential noodling about the right price for oil, there wasn't a single question about Saudi oil supply, whether about overproduction in the Ghawar field or anything else. Remarkable.  

Susquehanna: Between Fame and Fortune, Choose Fortune

Stop whatever it is you're pretending to do and read this great new article on Susquehanna International.

SUSQUEHANNA INTERNATIONAL MIGHT very well be the biggest privately held options trading company in the world. Over two decades, Jeff Yass and five other founders and many people who work for them — they now employ 1,500, with offices all over the globe — have become very, very rich. Despite the size, secrecy pervades Susquehanna. Stealth is a word that former employees use often in describing the company m.o. A former trader defines it: If you have to choose between fame and fortune, choose fortune.

Let the legend grow.

Inside Susquehanna, a betting culture prevails. Not just in trading. It’s the philosophy that percolated in a dorm room in Binghamton, that anything that came their way would succumb to rational analysis. In the aggressive mentality of a trading firm, that means you don’t say anything you’re not willing to bet on.

A few years ago, a young Susquehanna trader named Alex Mendoza bet around $500, he says — a hundred with one guy, $50 with another, a lot of side bets, just like the trading floor itself — that he could do 300 push-ups in 45 minutes. He didn’t make it. He paid off his bets, and then was quietly told by management not to make that sort of wager again.

Not because of the amount — $500 is lunch money to a trader. Mendoza was reprimanded because he’d gotten ahead of himself. He had made a dumb bet, because he really didn’t know if he could do 300 push-ups in 45 minutes. If you don’t know the answer, betting is a gamble, utterly antithetical to the [founder Jeff] Yass method.

More here.

 

Julian Robertson on Debt, Sudden Stops, etc.

A highly worth-watching half-hour interview today with Julian Robertson, the eminence grise of the hedge fund industry.

 

[via FMF]

 

Jeff Rubin Talks Oil and Trade

Jeff Rubin was on CNBC today talking the end of globalization. Jeff and I had a run-in a few years ago which I will turn into a post here sometime. Anyway, Jeff is a smart and interesting energy economist, so anything he says on oil is worth paying attention to.

 

On a Clear Day You Can See T. Boone Pickens

A house owned by oil/energy magnate T. Boone Pickens' wife Madeleine is creating only-in-SoCal problems in Del Mar, California. The plants on the ocean side of the $35-million property are alleged to block the views south to La Jolla from a neighboring property. Apparently being able to say   that "on a clear day you can see T. Boone Pickens" is just not enough for some people.  

Real Men Don't Play Minimax

From a new NBER paper, professional sports sorts apparently don't play minimax strategies:

Professionals Do Not Play Minimax: Evidence from Major League Baseball and the National Football League 

Game theory makes strong predictions about how individuals should behave in two player, zero sum games. When players follow a mixed strategy, equilibrium payoffs should be equalized across actions, and choices should be serially uncorrelated. Laboratory experiments have generated large and systematic deviations from the minimax predictions. Data gleaned from real-world settings have been more consistent with minimax, but these latter studies have often been based on small samples with low power to reject. In this paper, we explore minimax play in two high stakes, real world settings that are data rich: choice of pitch type in Major League Baseball and whether to run or pass in the National Football League. We observe more than three million pitches in baseball and 125,000 play choices for football. We find systematic deviations from minimax play in both data sets. Pitchers appear to throw too many fastballs; football teams pass less than they should. In both sports, there is negative serial correlation in play calling. Back of the envelope calculations suggest that correcting these decision making errors could be worth as many as two additional victories a year to a Major League Baseball franchise, and more than a half win per season for a professional football team

 

Trends in Tariffs: 2000-2008

Some useful tariff trends data to keep in mind as you consider the latest twists and turns in the tariff tussles going on worldwide:  

Readings

Caught up in traveling and other commitments, but here are a few things worth reading:

• Oil reserves tick upwards unexpectedly (Source)
• Cisco Visual Networking Index: Forecast and Methodology, 2008-2013 (Source)
• A coincidence occurred. Film at 11. (Source)
• Moritz Revisits Steve Jobs and Apple (Source)
• Television per capita around the world (Source)
• Data on U.S. trade restrictions (Source)