Tag Archives: surfing

In Other News

I know Bernanke spoke today.  Frankly, I don’t care at the moment.  He said what he said, the market reacted the way it reacted to that message.  I’ll get back to that soon enough.

But for now, the biggest going on here in Kure Beach?  We arrived at our favorite cottage (i.e. home away from home)…

We went to a ribbon cutting since our friends took over management of a new property.  A place that has been there since the 1930s…

And the one and only Gyro stand with a walk-up window is now a burger shack.  Beach House Burgers to be exact…

And we met the mayors of both Kure and Carolina Beach, the two towns on the island.

Amazing what a 4 hour drive can do to your perspective.  I enjoy coming here precisely for that purpose.

Well, it’s getting late on the island.  I’m going to do something I haven’t done in ages.  Sack out early.

Good night, folks…


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Going Coastal

I just wanted to take a brief moment and inform all three of my readers (myself included) I am going to be taking a break from the normal financial and macro-related fare you find on this piece of blog.  I’ll be at the beach with my family for the rest of the month, taking a well-deserved and long overdue reprieve.

I’ll still have some posts, but they’ll be a different kind.  Perhaps a bit more personal, maybe even a bit more poignant.  There’s bound to be more photos.  Maybe even a video or two.  I haven’t thought that far ahead.

But it’s good to get away.  The ongoing nightmare known as European interbank lending isn’t going anywhere.  Neither is the debate on FinReg.  Nor the bigger macro backdrop complete with de-leveraging and debates about fiscal stimulus and whether or not central banks drove the macroeconomic bus off the proverbial cliff.  If all of that changed on a dime simply because I wasn’t blogging it, well, I guess I’ll shut up and let everything turn for the better.

But I know it won’t and you know it won’t.  These issues and the debate about how we respond to them will rage on, regardless of what any one of us might think or feel.

So in the meantime I’m going to take the opportunity to listen more attentively to my wife when she asks me to do something (an area I’m sure I have constant room to improve on), to play a bit more with my son and in general, let some of this stuff fade into the background…

And find something else to talk about for a little while…

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What the Past 3 Years Have Taught Me

Was sitting here watching my tweets, looking at data, and reading the news flow this morning when I started thinking about what the last three years have shown me. So I thought I’d pen them and share them with the 2 (maybe 3? hoping for 3?) readers of this bog. I don’t think these are profound or earth-shattering, but since folks seem to be commemorating things today (We’ve sunk to commemorating over-liquefied 50%+ retracements? Really?), figured I might as well chime in before the real Professor Pinch posts something unrelated and mucks up my abysmal SEO.

A String of Events That “Couldn’t Happen,” “Shouldn’t Happen”, or “Can’t Happen” Can Indeed, Happen

Call it my paraphrasing of Taleb. But the truth is, we started seeing tremors in mortgage origination back around this time, three years ago. Which is where I start the clock on the crisis, not the NBER’s definition. And the truth be told, I don’t even think it’s true. I think our methods for estimating likelihoods and severities of events are flawed. They’re far from perfect. Gaussian distributions matter little to me, unless I’m reading something that has been stylized to show me, the dear reader, how it should work. Yet our literature in finance and economics is filled with Gaussian assumptions. I don’t offer this up in a “destroy the models and lynch the quants” sort of manner, far from it. I think we need that thinking and the benefits of data visibility/transparency (we can’t analyze it until we record it/store it), but the mold needs to be broken in terms of what we do with it and how we do it. I tend to think we’re a lot more infantile in this realm than we believe we are. We need to focus on building mousetraps and metrics more.

Also, there were tell-tale clues all along the way to this point, but they were collectively ignored, forgotten, or disputed. I have a lot more to say about this, but away from this post. The “hindsight is always 20/20” rebuttal usually comes out of this, but frankly, I don’t buy that. I think you could’ve seen a bunch of this if you chose to look.

Never Underestimate a Political Hack’s Desire to Clean Things Up Over a Weekend

Just read “Too Big to Fail” to see what I mean. That desire has had a lot of manifestations over the past few years. From mortgage mods to unorthodox Fed policy to stimulus largesse, the desire to just make pain stop is one I frankly underestimated. And the lengths they’ve went to are simply fantastic. This acts as a lead-in of sorts for my next learning.

The Things Political Hacks Do Are Great at Creating Cross Currents and Choppiness

What do I mean by that? Simple. Throughout ’06 in the run-up to the mortgage meltdown that started in ’07, 2s/10s on the yield curve was inverted, which meant 10yr funding was cheaper than 2yr – not typical. But as the Fed aggressively cut rates, sparking a rally in short-term money, the curve started to normalize. And with the Fed purchasing MBS and starting up its alphabet soup of liquidity facilities, the effects were amplified.

All of which was supposed to spark a run to risky assets, which it did. Frankly I was shocked at how well it worked, because I just assumed people would’ve learned to exhibit a little more restraint, and been a little less willing to play along with the Fed. But, mea culpa, I can admit that. While it has made a great run-up thus far, it’s not something that looks like it can be sustained. Well, at least to me, it doesn’t.

So I look around and question what’s real and what isn’t, kind of like Neo spending night after night trying to figure out what The Matrix is. Because I want to find relatively clean data and observations to help me price risk/return. Not data points that feel like they’ve been dampened, scrubbed, massaged, and filtered to give the appearance of normalcy, which is what I feel like has been done. But if you start with that premise, you arrive at some conclusions you would never arrive at otherwise.

It kind of reminds me of the first day I tried to surf. Nasty on-shore wind, beach break thrown out of whack by a tropical storm somewhere near Bermuda, in short, a mess. But I went out, managed to catch a few good ones and had a good time, mostly for the friends I went out there with – not the waves. In hindsight, I was probably better off staying out of the water. All the starts and false starts in spotting waves made it tough. So as a result, I’ve become a bigger fan of keeping dry powder and working on stripping away noise. I feel like I spend a lot more time on this now than I used to.

Cross Currents, Seasonal/Cyclical/Secular Trends

This is where things have been tricky, if not treacherous. I’ve become a lot less enamored with government statistics on the economy, because frankly, I don’t think last year’s seasonal effects can capture seasonality one year forward. Maybe it’s climate change and the cyclical nature of weather that does it. I don’t know, but I find myself yawning a lot more when retail sales, NFP, housing starts data come out during the winter months. It just seems like putting a lot of weight on observations skewed by cold temperatures, Eastern Standard Time, snowfall, and holiday shortened months just doesn’t make sense. It’s just noise to me. That means I’m essentially using the months March through October as my barometer of economic health, and I’m OK with that.

So when I think of the jobs data, as easy as it is to be bearish/cynical about it, there are legitimate reasons we can see some things turn around. A lot of work that has to be done simply doesn’t halt because we’re in the Great Recession. Sure, construction and real estate related work isn’t going to be what it once was, financial services work won’t be either. But time still marches on and there will still be some work that has to get done. Governments still need people, hospitals, hotels, and other places need to hire too. My wife and I are still going to have to do/provide plenty of things for our son, so we need goods and services for that and somebody to provide them to us. And we’re not the only ones who need them, there are plenty of others in the same boat. We can argue about how much and at what wage, but the market should be able to sort that out. Trees don’t grow to the sky and they don’t crash straight to hell, either. Call it Zen and the Art of Bearishness if you want, but it’s a struggle to find balance.

I guess I’m trying to say there’s a certain rhythm that all of these things keep, regardless of what any one person or group(s) of people may think or do. What got me thinking about that the most was the weather. You go out, you talk to people, and you’re bound to run across some who act like winter is never going to end and we’re destined to a cursed life of nothing but cold and snow. Next thing you know it’s almost 70 degrees, sunny, and we’re in the second full week of March. The days are getting longer, you actually see and hear birds, and you realize some things are the same as they ever were. Psychology is one of those things that’s so powerful, yet its influence is often misjudged and misunderstood. Folks seem to get way too high and way too low these days.

At any rate, Happy Anniversary…

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Wordless Wednesday 12-23-09

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Why Fight Mother Nature?

It’s a very simple question, this. But everywhere I turn, people are constantly trying to do this very thing – no matter how futile it may be.

As Samuel Brittain at the FT said, “regular business cycles existed in the eyes of the beholder and that there was simply an irregular wave-like movement.”

And yet…

During the “Great Moderation” of the late 1990s and early 21st century, it was not only Gordon Brown in the UK who announced the end of “boom and bust”. Many other politicians and economists in different countries said much the same, if less stridently. Hardly any authority is saying that now.

Indeed. Because you can’t fight Mother Nature. Elliot Wave theory talks about cyclical patterns in stock markets, and of course, there is the Chinese proverb which says wealth does not pass three generations. I imagine that someone spouting about these things would look foolish, even naive in Brownie’s eyes. But Greenspan believed, as Professor Salerno’s post at Mises.org succinctly states “business cycles are a source of wonderment rather than a subject for rigorous logical analysis.”

You would think that point of view would mean Greenie thought fighting Mother Nature was useless. Au contraire, mon frere.

For the Fed is cast in the role of a vigilant and indispensable protector of the market economy, continually operating to monitor and contain the unruly forces of inflation and recession that constantly threaten to emerge from the economy’s dark-side.  Moreover, the very mystery that Greenspan claims enshroud the workings of the business cycle provides a ready-made excuse to absolve the Fed from all blame on the occasions when its best efforts at containment go awry and the business cycle is loosed upon the economy.

What’s more:

A troubling question immediately suggests itself, however:  If indeed the business cycle is beyond rational analysis, how then can we depend on the Fed to control or mitigate it? The answer, according to Greenspan, is to completely ignore economic theory and to pore over the economic data on a daily or even hourly basis, trusting to his own intuition to discern the future movements of the economy from the signals that are secreted deep within the ceaseless flood of data.

So there you have it: endless data mining, autoregressive model building in SAS or Matlab (which are are great software packages, by the way), and, for all we know, recitation of spells from Hogwarts. Or is it the Dark Side of the Force? Doubt it. No self-respecting Sith Lord would ever wear those buffoonish horn-rimmed glasses that he wore.

But that’s how monetary policy was conducted then, and for all of Bernanke’s scholarship on the Great Depression, I don’t get the feeling he does much more. This is the era of the “data-dependent” Fed, after all. And if they screw up, they’ll just plead ignorance.

So the question remains: Why fight Mother Nature?

Consider surfing. I’ve taken it up over the past few years, and I thoroughly enjoy it; even if I spend more time rinsing my mouth with saltwater than I spend actually riding waves. But you don’t go out there thinking you control the waves and you sure as hell don’t go out there when there are sharks, snapping fish, and/or lightning. You have no control over any of those things. If you have any doubts about this at all, go here and look at the photos from this year’s Eddie Aikau surfing tournament. I can guarantee you not one of these guys looks at any of the factors that make or break surf conditions (tides, wave height, wave sets, wind speed/direction) as something that can be controlled nor are they mercilessly agonizing over real-time data hoping they can change conditions to be more favorable.

You just have to come to a place within yourself and accept things as they are, and what they will be.

The best way to do that is to have some grounding in what actual economic theory tells us what we can expect; not by wringing our hands over data minute-by-minute, hour-by-hour.

After all, the Boy Scout motto says: “Be prepared.”

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