Going to the Source

Here is an interesting tidbit about the origin of the current outbreak of swine flu, aka H1N1 virus, aka influenza A, and soon to be aka "that non-event event".

This Wired article by Brandon Keim indicts modern industrial scale agriculture practices:

Scientists have traced the genetic lineage of the new H1N1 swine flu to a strain that emerged in 1998 in U.S. factory farms, where it spread and mutated at an alarming rate. Experts warned then that a pocket of the virus would someday evolve to infect humans, perhaps setting off a global pandemic.

The new findings challenge recent protests by pork industry leaders and U.S., Mexican and United Nations agriculture officials that industrial farms shouldn’t be implicated in the new swine flu, which has killed up to 176 people and on Thursday was declared an imminent pandemic by the World Health Organization.

“Industrial farms are super-incubators for viruses,” said Bob Martin, former executive director of the Pew Commission on Industrial Animal Farm Production, and a long-time critic of the so-called “contained animal feeding operations.”

This sounds credible to me. Of course the crazies will immediately call for society to go back to 18th century farming and animal husbandry practices. That of course will mean that humans instead of the flu will have to kill off 5 in 6 living people so that we can be "sustained" by Mother Earth.

Being the simple-minded pragmatist that I am, the simpler path forward is to impose some regulations (you know "rules" and messy heavy-handed bureaucratic fiddling that gets in the way of wild-eyed me-first entrepreneurs). Simple monitoring and containment regulations would probably do the trick. That that story isn't as "sexy" as demands to eliminate these large scale operations and calls to return to the golden age of Mom & Pop farms.

Australian Contrarian

Here's a newspaper article in the Herald Sun that questions global warming:

Global warming alarmists out in cold

IT'S snowing in April. Ice is spreading in Antarctica. The Great Barrier Reef is as healthy as ever.

And that's just the news of the past week. Truly, it never rains but it pours - and all over our global warming alarmists.

Time's up for this absurd scaremongering. The fears are being contradicted by the facts, and more so by the week.

Doubt it? Then here's a test.

Go read the whole article. It highlights 10 myths and then gives you the facts. Sure it is from an Australian perspective, but that's part of its charm.

What's in a Name

Steven Levitt's research included the effects of a name on economic success. You'll have to read his book Freakonomics for the answer. But here's something from his blog to whet your appetite:

We wrote in Freakonomics about two brothers named Winner and Loser. Winner became a lifetime criminal; Loser a detective in the NYPD.

...

Now, from the Milwaukee Journal-Sentinel, we have the story of three sisters: Kimberly, Robin, and Marijuana Pepsi Jackson. Just like Loser before her, Marijuana Pepsi has made something of her life, earning a master’s degree in education.

Why Wall Street Flubs

Here is an hour lecture at MIT by Eric Rosenfeld, an MIT graduate who in the early 1980s helped create the new quantitative strategies for Wall Street risk management and hedging strategies. He is fairly unapologetic for the failings of Wall Street despite the collapse of LTCM and the recent credit crisis/market collapse.

He begins the lecture by claiming that the critics of Wall Street got it all wrong and that LTCM was a sound company built on a sound quantitative strategy build into their risk modeling and hedged trading strategy that had "proven" itself for ten years at Salomon Brothers. He runs down a list of "myths" about LTCM that he wants to knock down:

• Greed and hubris brought LTCM down. LTCM believed in its own "invincibility".


• LTCM used 100-1 leverage.


• It used "black box" models.


• They demonstrate the perils of applying academic theory in the hard reality of the market place.

But at the end of his talk, he does admit that LTCM was bound to fail. He admits to these weaknesses:

• The models were not always sound. He gives a story about how some of the quantitative models were built by "rocket scientists" who didn't have good intuitions about market dynamics.


• He admits that leveraging is bound to fail. It may work fine for 9 years, but it will fail in the 10th year when "the unexpected" happens. (Actually LTCM lasted just 4.5 years, so even here Rosenberg is overly optimistic.)

As I watched and listened carefully, I came away convinced that the "myths" were not myths. They were truths. But somehow Eric Rosenfeld thinks they are myths. That astounded me.

The very facts presented in his talk can be marshalled against his claim of four "myths" about LTCM. Here is what I gleaned from the talk:

• It wasn't "greed" that killed LTCM, but there was a fair amount of hubris which led them to take positions that their "risk analysis" showed to be safe. In fact Rosenfeld walks you through their daily valuation and claims that this shows that their approach was sound. This from a guy whose company failed. My definition of sound doesn't include "works most of the time but fails under 'exceptional' circumstances". And, the 'exceptional' circumstances of 1998 don't sound like a 'once in a hundred year' he claims. He admits they would have failed in 2008. I'm 100% sure they would have failed in 1929. I'm pretty sure they would have failed in 1914 when the markets closed for months. I would bet they would have failed in 1987 when programmed trading caused a crash of the stock market. (He didn't discuss this, but I'm convinced that having Scholes and Merton on the board of directors gave the company these sense that they were "untouchable". They were building strategies using the best models out there such as the Black-Scholes which won their inventors a Nobel Prize.)


• In his talk he wants to claim they were "only" leveraged 30:1 in normal times but that in 1998 it ballooned to 300:1. So the critics talking about 100:1 doesn't sound like a "myth" to me.


• Near the end of the talk he complains about a guy hired from CalTech as a real "rocket scientist" who started at $50K/year to build models who couldn't build models and who went on after the collapse of LTCM to make $500K/year duplicating the risk models of LTCM/Salomon at other Wall Street firms. Rosenberg says he gave this "rocket scientist" a problem and the models produced were "garbage" while the same problem given to an MIT student (his alma mater and the crowd he is talking to) was partially solved in a day with a "good" model. But the fact is, Rosenberg has -- by his own anecdote -- convicted the LTCM group of using black box models built by "rocket scientists" who didn't understand what they were modelling. Moreover the "good intuitions" of the MIT kid couldn't have been that good because the good models still let LTCM blow up in 4 years!


• Rosenberg is quite angry at the claim that academic theory doesn't apply to the market. But this in fact is an issue hotly debated in academia today. The models of "rational economics" have proven to fail to fit reality. The very risk models that Rosenberg talks about failed LTCM. He constantly refers to using "uncorrelated" bets to bring down the level of risk, but the LTCM crisis, the current crisis, and all major crises demonstrate that when things go really bad, what is "normally" uncorrelated becomes correlated. He admits this fact, but he still clings to his "risk management" calculations based on uncorrelated bets in the marketplace. He puts down the "black swan" claims of Nassim Nicholas Taleb. The behavioural economists have undercut the idea of rational economic agents by producing empirical proof and developed theories of irrational human behaviours.

Finally, I was amazed at how passive this MIT audience was. They are living through an historical market meltdown. They are being lectured by a guy who participated in a mini-meltdown in 1998. Yet none of them challenge him in his claims of expertise. This is supposed to be the "cream of the crop", bright students, self-actualized, and critically rational. But I see no evidence of this in their interaction with Rosenberg. Amazing!

Canadian Conspiracy

Watch closely to uncover the devious and evil Canadian conspiracy working to ruin the US monetary system...

Ritholtz Lets His True Feelings Show

I get a kick out of Barry Ritholtz. He's more honest than most Wall Streeters. He does show concern for the "little guy" while he helps the rich get richer...

Today is May Day, and while International Workers’ Day (Labour Day in the UK), means little in the USA, its a big holiday in Europe. Banks and markets are closed on the continent, (England celebrates on Monday).

Speaking with Mike Panzner this morning (his clients are mostly Europeans) made me think about this: Which region is the true Socialist state?

-Europe has cradle to grave health care plans, generous unemployment benefits, and free or subsidized college costs.

-The US gives away public assets (oil, gas, mineral rights) for pennies on the dollar, has huge subsidies and tax breaks, and bails out reckless speculators.

It turns out that both regions are welfare states — only in Europe, the natural population (i.e., people) is the recipient, while in the US, the corporate population is the beneficiary.

Food for thought . . .

His site is mostly about money & markets. But once in a while he shows a social conscience. Something rarer than hen's teeth among his Wall Street brethren.

An Incredible Tale with a Moral

Here is a cautionary tale about how a little knowledge can be dangerous...

This is from a posting by Maggie Koerth-Baker on the boingboing website:

First: Get That Meddling Sibling Out of Your Way
Imagine you're a fertilized egg, just a few days old. There you are, floating around the womb and minding your own business, when, BAM! You run smack into another just like you. Well, not just like you. But certainly close enough to be a threat. Now, you have a choice. You can roll over and let yourself be born as just another fraternal twin, or you can stand up for your individuality and absorb the interloper. Naturally, you do the smart thing, and nine months later your parents take home one healthy baby.

Then: Discover That They Aren't As Dead As You Thought
Like a horror-movie villain locked into a three-picture contract, your twin never really died. Instead, she'll end up hiding in plain sight--within your very cells--rendering you a chimera, a single human who carries the genetic makeup of two different people. Most of the time, there aren't any outward signs that your body is harboring a stowaway. But when you do notice, things get a little crazy. Take Karen Keegan, who discovered her chimera-ness at age 52. When Keegan needed a kidney transplant, she and her two adult children underwent DNA testing to figure out which kid's kidney would be the best match for mom. Surprisingly, the tests showed neither. In fact, according to DNA, Keegan's children weren't her children at all. The case confounded doctors for more than two years until, in 2000, the docs finally realized that Keegan's blood cells carried different genes from the cells in her ovaries---the long-absorbed twin was found.

Perhaps you're wondering whether chimeras can incorporate twins of two different sexes. The answer is yes, and the results are often much stranger. In 1998, Scottish doctors reported treating a teenage boy for an undescended testicle. But when they put the kid under the knife, no second testicle could be found to pull down. Instead, where the ball should have been, doctors discovered an ovary and fallopian tube. Chimera strikes again.

For some fun further reading, check out the story of Lydia Fairchild. Like Karen Keegan, Fairchild's chimeric nature was discovered after DNA tests said she wasn't the mother of the children she was pretty sure she remembered giving birth to. Unlike Keegan, however, Fairchild's kids were still young and the initial DNA test almost cost her custody.

Life is full of surprises. The world is wierder than you can imagine. A little knowledge can be a dangerous things. These are all lessons to be learned from this story.