Chat and links re EU crisis etc

Feral Oink

Nov 25, 2011 13:49

The actual article that I saw was fresh, from FT Alphaville ftalphaville.ft.com/blog/2011/11/25/760761/…

One man's haircut is another man's unsecured risk

@EnergyNumbers When you have a moment, confirm that you have read and write access to everything, and that I haven't accidentally overconfigured anything in some excessive way in my rush.

Feeds

Feral Oink has added EnergyNumbers to the list of this room's owners.

EnergyNumbers

@FeralOink Right, I have read and write acccess here, I think. And everyone has read access.

Feral Oink

Okay good!

I just made you a room owner too, I think that was necessary

Yes, that sounds correct. Everyone has read access, that is fine. And yes, re your comment: Working from the rule of thumb that at times of real crisis, almost all correlations go to 1, perhaps almost all counterparties are wrong-way risk when things get really really bad. Just musing, I could be very wrong on that.

That is exactly what seems to be going on now. There isn't any way to get diversification, or rather it is a challenge.

Negatively correlated securities, particularly of the same asset class, e.g. common equity ;#) oinkoink are always nice to find but rare.

Yet I think right now that most of the major US and first world or G20 or G8 or whatever politically correct term equity and corp bond indices are nearly 1.0 corr. Well high .9's

EnergyNumbers

@FeralOink Is "OECD" the term you're after? As opposed to, say BRICs.

Feral Oink

Yes, that sounds better. I saw a hilarious mauling of PIIGS the other day.

EnergyNumbers

Nov 25, 2011 13:58

Or even, (as a very smart wag on The Motley Fool wrote) beyond BRICs, to CEMENT - Countries in Emerging Markets Excluded by New Terminology?

Feral Oink

I couldn't stop laughing, someone mispelled it as GIIPS. Repeatedly.

EnergyNumbers

@FeralOink Maybe they were striving to name the countries in the order they're going down. Greece, then Italy, etc?

Feral Oink

Here you go, I promise you'll laugh. Original article, quoted from Bloomberg with GIIPS intact news.firedoglake.com/2011/11/16/… And then the pithy observation about "those are known as PIIGS not GIIPS" my.firedoglake.com/members/kipchuk/activity/685809

And meant to say, yes, you might be very correct about that, the order in which they are going down. The beleaguered southern members of the EU.

I feel badly for countries like Slovakia. They are part of the EU and are not profligate with large numbers of Mercedes and short work days, yet they are needing to divert a huge amount of their GDP or what have you, resources to prop up ailing PIIGY members of EU. I know that is gross simplification, probably. EU is a mess for me to follow.

EnergyNumbers

@FeralOink "EU is a mess for me to follow" - it would seem that Angela Merkel has the same problem ;-)

Feral Oink

I don't know the regulatory laws to begin with, barely remember the ones in the U.S. now that they are getting rid of so many of them with Dodd Frank and not sure what they are replacing them with. E.g. no more credit rating agency req's, but what instead? Flat $50billion collateral req in some cases, like for commodities brokers, but not sure what for other entities. I've been following your BofE

and FSA lately. Mr. Haldane and colleague's essay on the evils and non productive nature of banking and the financial sector. It was a little overstated, but on the other hand, y'all don't have Glass Steagall. Well actually, we don't either anymore.

EnergyNumbers

Nov 25, 2011 14:11

@FeralOink BofE on a nightmare mandate - maintain a CPI inflation target of 2%, +/- 1%, but with a government committed to a deflationary austerian exercise

Feral Oink

Austrian exercise or Austerity?

EnergyNumbers

@FeralOink Exactly: Austerian = Austrian + austerity (a Martin Wolf portmanteau, I believe - ft.com/comment/columnists/martinwolf )

Feral Oink

I don't much care for the Austrian economic thing. I like regulations and on-balance sheet entries. Not to excessive degree, but efficiency has limitations. People think very short term sometimes. Some guidance from a reasonably moral entity, and reasonably moral populace is needed for harmonious political economy.

Don't I sound fussy!

Oh that is cute Martin wolf portmanteau Austere + Austrians.

You are clever bright funny, aren't you?

EnergyNumbers

@FeralOink No, just prolific at stealing other people's good jokes

@FeralOink Sounds familiar - is that Plato?

Feral Oink

@EnergyNumbers Martin Wolf is an interesting amalgam. I just scanned that quick like. One of my favorites over here for financial reporting is New York Times Floyd Norris. Very stolid. Fair, sensible, but a reporter whereas Martin Wolf is more of a "authority" I'm guessing.

No, it is original me. Actually, I was reading this last night. And it got me to thinking a bit more.

post.nyssa.org/nyssa-news/2011/11/…

EnergyNumbers

Nov 25, 2011 14:19

@FeralOink Definitely an authority - what the best of financial journalism used to be. He's one of a dwindling few.

Feral Oink

I liked it. I like CPA's and attorney's and good engineers that aren't arrogant.

Here's my Floyd nytimes.com/ref/business/bio-norris.html

Much more homey homely type than Martin Wolf, but probably not that disimilar

EnergyNumbers

@FeralOink From your NYSSA link: "The important message is that a system can become “too efficient.” In the process, it becomes brittle and breaks." - hang on, that sounds familiar - I think I wrote something similar in an answer to the question about hard disk drive prices, a few days ago

Feral Oink

I am smiling. I like storage products. DASD.

Did you really? Take your time. I don't mean to be rushing you.

You are very kind and generous to be spending so much time playing with me and talking.

I appreciate it immensely. It is so nice and fun!

EnergyNumbers

1

A: Increased hdd prices due to Thailand floods: micro- or macroeconomic failure and solution?

There's probably a formal name for the particular type of strategy I'm going to discuss, but I don't know what it is. So I'll call it the White Swan Strategy, as a nod to Taleb. I'll update this intro if someone gives me the formal name. The White Swan Strategy aims to make long-term profits thr...

Feral Oink

Ohh cool, let me have a look, I was reading about that Thailand problem with the shortage of disk drive manufacturing capacity in network world yesterday while I was trying to make a news widget for my myspace page. Let me read what you wrote, one moment please

Okay. Yes. I was thinking about that, or similar. Vertical integration in manufacturing.

Vertical integration in manufacturing yields efficiency with minimal risk. That is not the case in banking and financial services. Eugene Derman wrote something recently about a little friction being a good thing. Implement it as you will: A Tobin Tax on transactions, a Tobin Tax on interconnected corporate entities, or better yet, re-instate and enforce sensible securities regulations

Usually one CAN make a case for why vertical integration and interconnectedness is less risky in manufacturing and industry than financial services.

The Thailand incident runs contrary to that.

But this is where there is a conflict: We are taught that free trade is always better.

By economists. And I don't know enough to argue the case, because they get me all twisted around with trading deficits and cross border this's and that's and balance of payments blahblah

I mean, I can figure it out if I pay attention, but it is boring and flies out of my head quickly.

Now consider the example of control systems.

And the desirability of local minimums, stability. Well that is the best of all worlds, when any disruption brings you back to equilibrium! But consider a situation without so much interconnectedness.

It seems better, less efficient at times, multiple currencies, not so much of the one stop financial shopping, more rules and maybe a few tariffs, slower, not so well integrated, different standards, Fedora, Ubuntu, Linux, zOS, Apple vs Windows, FAT32 vs NFAT, I'm being a little silly but you know. Right?

EnergyNumbers

Nov 25, 2011 14:41

@FeralOink It's all about system boundaries, isn't it? As economists, we have to simplify a situation, draw system boundaries close, because we can't model the whole world just to find out whether to raise the price we charge for widgets by 0.1% . But inevitably, crucial things end up sitting just outside those boundaries.

Feral Oink

But it contradicts what the economic models tell us is best. About a world without boundaries, about the virtues of free trade, open exchange. And that is where I truly am confused. Because both can't be correct. What do you think?

EnergyNumbers

@FeralOink Yup - multiple currencies give a bit of decoupling. Currency unions between similar economies makes a lot sense - e.g. Germany + BeNeLux. Currency unions between regions with economies that experience economic cycles in radically different ways lose essential flexibility and end up brittle - e.g. Germany + Greece.

Feral Oink

Yes, exactly. Italy's banking structure wasn't so bad, it has a different GDP and economy than much more wealthy northern European countries. Can't have both under the same paradigm.

The extremes are Greece and Germany. So very different. And not good for either to have one being dependent on the other.

Never were before.

EnergyNumbers

@FeralOink Like you say, it's the analogy to control systems: put things in a single component when they can work closely together and are completely interdependent anyway. But keep on separate components, those functions where you might want them to behave less closely-coupled, or even swap in and out: weakly linked. The tiny loss in efficiency is more than compensated for by the increase in system resilience.

Feral Oink

Greece that is. Greece has had its issues, but it also did certain things right, and got by. Now, it is a mess.

Yes, weakly linked

You expressed that well.

What do you do? What degrees do you have? Are you math? Are you econ or university or govt?

EnergyNumbers

Nov 25, 2011 14:47

@FeralOink Quite - but Germany lived well on it for a decade - their exports were effectively subsidised through having their exchange rate artificially suppressed. Bad news for the peripheral states who were doing the subsidising, through having their exchange rate artificially elevated.

@FeralOink Bit of everything - a generalist. Mathematician originally, now concentrating mostly on energy numbers (modelling, policy, economics, logistics, etc)

Feral Oink

You know, Germany had a really difficult time digesting East Germany around the unification days of 1990's early ones.

I wonder if they were buoyed along by the EU. And whether that cushioned the impact far more than would have been possible. I refer to what you mentioned about getting their exports subsized and having a ready made export market to the rest of Europe be ultra faciilitated.

Oh urk! That reads awfully!

Are you able to follow that at all? I am trying to say

that I concur with what you said about Germany benefiting from the structure of the EU.

In some sense they should be willing to pass benefits on to Greece. Greetings umm Chuck.

♦ Beta theories

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