Re: The Federal Reserve: Love it or Hate it
 

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It essentially says that from the Harvard Economics Research Project in the 1940s, that this secret was discovered that economics obeyed the same laws of electricity. And that fractional reserve banking and debt are intricately connected to war -- "in an economic model, human life is measured in dollars, and that the electric spark generated when opening a switch connected to an active inductor is mathematically analogous to the initiation of war".

And that war balances the economic inductance of the system caused by printing currency in excess of GNP.

It's a very intriguing essay but is there anything to it? It is from a conspiracy book, which alleged its a technical operations manual from some globalist organization.

http://www.lawfulpath.com/ref/sw4qw/index.shtml

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Lol, it has a "Forward" at the beginning, right before the preface.

Re: The Federal Reserve: Love it or Hate it
 

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and you can find the same predictions on the book lists every year for the last 30. As I said, keep throwing darts eventually youll get it right.

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What is your point? Show me works where Austrian influenced economists predicted a rise in gold for periods where the opposite happened.

Just because someone, somewhere said gold is going to go up every year does not mean that those who had a grounding in the economic factors involved, i'll group them as Austrian influenced, didnt predict events more often than random chance or average market expectations.

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No. Ive read all of Mises and Rothbard extensively, as well as the counters to AE.

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I'll bet this is not true. I can infer that from the awareness of the vast amount of literature produced by those two individuals.

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You seem to think that there are a lot of "long term profitable investors" who made those profits through publicly available information. That isnt supported by the data. In an essentially random process there will be outliers for any given period of time. Again, no professional investment firm has beat the market for more than two consecutive periods of 5 years or longer, after transaction costs.

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Can you please cite something other than your word to back this up?

Im also not saying there a lot of long term profitable investors. Im saying there are enough of them to show that this occurs more often than random chance, and made more true by the fact they almost all happen to follow a similar brand of economics (value investors, Austrians, etc.).

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ROFLMAO. Talking about reducing your own arguments to an absurdity. Minimizing (or more accurately balancing) risk and increasing profits are not mutually exclusive.

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Yes they are. See Gambling Theory by Mason Malmuth, specifically the chapter "The Silly Subject of Money Managment".

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I never said indices are mispriced. I will restate what I said more clearly. Stock averages grow over time not because of "mis-pricing" but because underlying broad market growth is productivity growth. Broad indices capture that productivity growth and are therefore expected to be profitable (and have proven to be in the past).

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Future earnings are attempted to be priced into securities. If indicies rise over an extensive time they are mispriced in the past.

Not every index is destined to do well over time either.

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You find the ones that can. Ive sat on investment committees for the last 30 years where fund managers track every major investment companies returns vs benchmark for 1, 3, 5, 10 and 20 year periods..to the extent that some of them survive that long. There are none (at least none that publish their results) that have consistent success at beating the indices.

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Why would i spend time looking for a study i dont think exists? You can believe that by all means. You cant expect someone else to believe that in debate on your word, sorry.

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you can characterize things as "artificially high" as much as you want. People have been doing it with regard to one statistic or another as long as there has been a study of economics.

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Will you please address the point. I showed that your use of empirical standard of living provides little relevance to the discussion of the pros and cons of monetary policy. A n economy can clearly have a high standard of living while operating a poor monetary policy.

Also is your answer to everything just to be dismissive?

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"Artificial again", lol. If I can even parse my way through the awful English here, you are wrong. Maybe if I capitalize it you will understand better. THE CURRENT RATE OF SUB-PRIME DEFAULTS ARE NOT SIGNIFICANTLY HIGHER THAN HISTORICAL STANDARDS FOR PRIMARY RESIDENCES. THE DEFAULTS ARE PRIMARILY FROM SPECULATORS WHO GOT INTO THE MARKET TOO LATE AND TOO THINLY CAPITALIZED.

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we'll have to agree to disgaree on this. the future will be very telling though.

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However, there is no reason for the current level of panic.


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again we must agree to disagree. I think the current level of panic is more than justified.

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Because "dueling quotes" isnt a game I enjoy. I much prefer analysis of fundamentals over public statements that are often as much window dressing as substantive policy indications.

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Its only dueling quotes if the fed contradicted themselves in statements. I havent seen that recently so i must assume you arent providing statements to the contrary because they dont exist.

Did you also think the fed was going to cut rates at the last meeting? What indication has the fed giving by any measure that interest rates went up for too long, inflation is not a problem, and interest rates cuts are no not an inflationary disaster?

If you think you have such exclusive information that the public doesnt have, id hope you make a lot of money by investing in private equity firms and lenders if you think borrowing costs are ready to go down and stay down.

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Where in the quoted statement is anything said about what the Fed is or isnt considering? It discusses what the market is CALLING FOR. Despite your jumping off track, the obvious answer is that the Fed is ALWAYS seriously considering cuts or increases. There last release prior to the injection of funds into the market certainly implied that while their focus is still on inflation they recognized that "Readings on core inflation have improved modestly in recent months." and that "...the downside risks to growth have increased somewhat". That is the kind of language that indicates that rates arent going up and they are looking at decreases. Layer on top of that any failure of the markets to respond to the increased liquidity and its obvious that cuts would seriously be considered.

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I never said rates are going up. Ive been saying they are going to stay flat for a while. This because the fed has their hands tied. They have a catch 22 because they cant help the market and inflation at the same time so they've been defaulting in a stand still, trying to give as much lip service as possible to both sides.

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Again you need a reading comprehension course. I said that the Dems would be a disaster, not that that no problems might occur if they lose.


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Why did you bring it up at all? What in the discussion encouraged you to say such a thing?

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No, I dont read them as saying they "must be very conservative now". The language of the last release was typical of indications of the possibiity of rate cuts. In fact part of the recent market decline was caused by disappointment that there werent cuts, despite them giving some hope for them

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The recent statement said that even though there has been rising problems in the market they still cant shift their bias from inflation.

Regardless, i dont deny that the fed wants to help the market but they realize that the economy has strong inflationary concerns. This is very different from your position which states that the markets need a rate cut now because the fed has been too hawkish in the past.

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You really like to put words in peoples mouths, eh? I never said the current market is deflationary, I said inflation was moderate. Whether you characterize moderate inflation as "inflationary" or not I dont know, since that word is generally not used in the absolute, but to indicate more than acceptable inflation. Further, you seem to be reversing cause and effect. Monetary policy is used to influence interest rates, not the reverse. How does a rate cut increase money supply?

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You said interest rates rose too fast and they are in need of a rate cut? How would that not be the relative equivalent of saying the market is deflationary and in need of an inflation boost?

Rate cutes increase money supply by encouraging borrowing and a decrease in savings, in short.

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You are confusing appeals to majority with appeals to authority, and the latter are only a logical fallacy when the authorities can be shown to be unreliable. There as no "appeal to status quo".

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i have shown the authorities to be unreliable.

Look at the greenspan quote i posted in this thread btw.

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it sure sounds like your guessing here, espcially with regard to timing. "little reason", "may", "tempt", "may",

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Nothing is certain. However if i think specific likelihood of events arent fully priced into the market i can benefit. For examples these could be more substantial risks than realized by the market. I dont have to know for certain what will happen.

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because the market was on a steady climb with the exact same information it has now with regard to the election. Is it possible some of the democratic risk is built in the volatility since 14,000? sure, but there is no reason to think it is

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If i said something like this your answer would be something like, "tons of people have been saying election premiums havent been priced in over time and not all of them have been right therefore you're wrong".

What do you mean there is no reason to think that it is. Is it public information?

Did you not say: "You seem to think that there are a lot of "long term profitable investors" who made those profits through publicly available information. That isnt supported by the data."

Re: The Federal Reserve: Love it or Hate it
 

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Lol, it has a "Forward" at the beginning, right before the preface.

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Actually, the actual essay has neither. The preface is from the book that originally published it and the forward is from someone else (the website?). Is this a reason to disregard the entire essay?

Again, I don't know if it is real or a hoax but it certainly is interesting and I've never seen a legitimate critique on it...hoping someone with knowledge here would do it since it's relevant to the Federal Reserve.

Re: The Federal Reserve: Love it or Hate it
 

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ROFLMAO. Talking about reducing your own arguments to an absurdity. Minimizing (or more accurately balancing) risk and increasing profits are not mutually exclusive.

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Yes they are. See Gambling Theory by Mason Malmuth, specifically the chapter "The Silly Subject of Money Managment".


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sorry to burst your bubble here, but you are very very wrong again.

you can use intelligent leverage and true diversification to both minimize risk AND increase profits.

the traditional portfolio of stocks and bonds has a risk adjsuted return (sharpe ratio) of about 0.30-0.35

by taking away equity allocation and moving it to leveraged short term bonds as well as a small amount to commodities (CCFs so they are deleveraged to risk level of equities) in addition to leveraged IL bond allocations and REITs, you can create a portfolio with an expected and historic sharpe ratio of 0.70, which is more than twice as good as the traditional portfolio.

the reason this works is that by using leverage, you can bring other asset classes to the same risk level as equities. since on average, all asset classes can be expected to have between a 0.2 and 0.3 sharpe ratio, you can use leverage to increase the risk level and thus the returns of any asset class (or deleverage an asset class). this is true forall asset classes with the exception of commodities since that is debateable at the present time.

further, there are time periods where the expected level of risk adjusted return for an asset class may be altered due to structural or repricing issues.

anyways, absolute returns can be adjusted by leverage so you are not locked into a given level of return. all that matters is creating an optimal portfolio. once that is done, you can tune it up and down to a risk level that suits your target (you can take a .7 SR and target 4% risk, or 10% risk vs. a .3 SR that, at the same risk targets, would return less than half the excess return per unit risk).

it doesn't pay to make broad based statements about things you do not fully understand without any qualificaitons and then cite a book on gambling where investing and diversification isn't discussed in enough depth to cite that work as defense of your point.

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You said interest rates rose too fast and they are in need of a rate cut? How would that not be the relative equivalent of saying the market is deflationary and in need of an inflation boost?

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if you can't see the very big difference between the two, then you clearly don't have an understanding of monetary issues. at least one that is deep enough to have this conversation.

just to give you a hint though:

inflation rate= the rate of increase of prices

deflation rate= the rate of decrease of prices

low inflation != deflation.

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I never said indices are mispriced. I will restate what I said more clearly. Stock averages grow over time not because of "mis-pricing" but because underlying broad market growth is productivity growth. Broad indices capture that productivity growth and are therefore expected to be profitable (and have proven to be in the past).


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Future earnings are attempted to be priced into securities. If indicies rise over an extensive time they are mispriced in the past.

Not every index is destined to do well over time either.

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neither of these is totally right. broad based indices of bonds, stocks, TIPS, etc. can all be expected to outperform risk free allocations due to capitalism.

capitalism returns the taking of risk, otherwise, risk would never be taken. an investor can allocate money to the risk free rate OR to an equity index. if the equity index couldn't be expected to return more than the risk free rate, no investor would put money in companies that require more capital to grow or invest or whatever they want capital for.

this excess return above the risk free rate is called a risk premium. it is the difference between risk free rate of return and the total return on an asset class (or broad index or whatever).

you can allcoate to a diverse set of asset classes and be sure that, over time, you will be rewarded to taking risk by allocating money to those asset classes. the construction of your portfolio will determine the relative risk adjusted return, but even an undiversified portfolio will return more than cash, otherwise, nobody would invest init.

these facts have held true historically and a consultant (Rocaton) has made numerous attempts at calculating exact risk premiums over time. they have 2 charts that are very instructive. the first one shows the linear relationship between risk and returns of asset classes (except commodities). the line is basically a 45degree line up from the origin.

the second one brings all those asset classes to the same risk level as equities and then plots the risk vs. return. this time, all asset classes come in at the same level of return of equities giving a sharpe ratio of between 0.2 and 0.3 (as one would expect).

another reason this makes sense is because if one asset class could be expected to perform better over time, more money would pile into that asset class and thus reduce its future expected returns. eventually, the opposite would occur as you see that asset class returning less than previously expected due to increased allocation to it. this process of arbitraging asset classes should (and has and is expected to) keep all available asset classes in the same risk adjusted return ballpark.

there are things that can reduce that risk adjusted return though as i mentioned. one example is if all pension funds in teh world switched 5% of their allocation to commodities. that would drive down (and possibly into negative territory) the sharpe ratio of commodities and make them a poorer choice for diversification going forward. another example is in the IL bond market in the UK where pension plans are forced (by law) to match their assets and their liabilities. that has resulted in a large allcoation to UK ILs and thus pushed down the future expected return a bit relative to US TIPS.

Barron

Re: The Federal Reserve: Love it or Hate it
 

inflation is defined by the supply outweighing the demand of money.

further i never said low inflation equals deflation. What, with regard to inflation or deflation, is meant by saying that interest rates rose to fast and a rate cut is needed?


Your first point requires a longer answer which ill get to, but i guess you haven't read "Gambling Theory" because the book does contain explicit discussions about investing and diversification.

edit: i think i may have quoted the wrong chapter from the book btw. just did it off head. looking into it.

Re: The Federal Reserve: Love it or Hate it
 

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inflation is defined by the supply outweighing the demand of money.

further i never said low inflation equals deflation. What, with regard to inflation or deflation, is meant by saying that interest rates rose to fast and a rate cut is needed?


Your first point requires a longer answer which ill get to, but i guess you haven't read "Gambling Theory" because the book does contain explicit discussions about investing and diversification.

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if the book includes sections on this, the fact that you can increase return AND minimize risk to a level beyond the traditional portfolio should be clear.

of course, once you have an optimal portfolio, risk and return become intrisically linked.

this is why you target risk. if you have a .50 sharpe ratio and target a risk level of 10%, you can expect 5% return.

if you target a risk level of 5%, you can expect 2.5% return.

that level of maximizing returns while minimizing risk shoudl be abundantly obvious.

hope that clears up this issue b/c nothing in my post can really be disproven as they are virtually absolute truths.

good luck with that if that is your intent.

Barron

Re: The Federal Reserve: Love it or Hate it
 

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I'd love to see some real economists or finance people debate the economic model presented in Silent Weapons for Quiet Wars, using a model of electricity for economics. If that's a real possibility, then I think the FED is to be hated.

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DcfirThs is a real finance person. He's probably one of the best contributors in Business, Finance and Investing. The problem with this thread is, DcfirThs has a much better understanding of conventional economic theory than any of us, but he is unfamiliar with Austrian theory. What this thread amounted to was each side trying to hash out their theory to the other side which doesn't understand it well.

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thats a good point. i've been trying to learn quickly austrian theory and in BFI i outlined what i like and what i don't. should i repaste here? link?

EDIT: umm, i can't seem to find it...if i come accross it (or if any of you see it/know where it is) i'll put it here...sorry [img]/images/graemlins/frown.gif[/img]

sorry to get snippy, i'll settle down. i don't think i'm going to engage any further with zygote on obvious issues.

i'll gladly go back to discussing the pros/cons of austrian vs. "conventional" economic theories though.

the other stuff i'm debating zygote on is just him not understanding the concepts behind what i'm saying and me having to teach somebody who a) thinks he knows everything, and b) isn't willing to learn but still wants to make braod based factual claims.

Barron

Re: The Federal Reserve: Love it or Hate it
 

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i'll gladly go back to discussing the pros/cons of austrian vs. "conventional" economic theories though.

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Please include "freedom" in your pros/cons discussion. Seems a trifle matter that is typically absent from any "conventional" economics discussion.

Re: The Federal Reserve: Love it or Hate it
 

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ROFLMAO. Talking about reducing your own arguments to an absurdity. Minimizing (or more accurately balancing) risk and increasing profits are not mutually exclusive.

[/ QUOTE ]

Yes they are. See Gambling Theory by Mason Malmuth, specifically the chapter "The Silly Subject of Money Managment".


[/ QUOTE ]

sorry to burst your bubble here, but you are very very wrong again.

you can use intelligent leverage and true diversification to both minimize risk AND increase profits.

the traditional portfolio of stocks and bonds has a risk adjsuted return (sharpe ratio) of about 0.30-0.35

by taking away equity allocation and moving it to leveraged short term bonds as well as a small amount to commodities (CCFs so they are deleveraged to risk level of equities) in addition to leveraged IL bond allocations and REITs, you can create a portfolio with an expected and historic sharpe ratio of 0.70, which is more than twice as good as the traditional portfolio.

the reason this works is that by using leverage, you can bring other asset classes to the same risk level as equities. since on average, all asset classes can be expected to have between a 0.2 and 0.3 sharpe ratio, you can use leverage to increase the risk level and thus the returns of any asset class (or deleverage an asset class). this is true forall asset classes with the exception of commodities since that is debateable at the present time.

further, there are time periods where the expected level of risk adjusted return for an asset class may be altered due to structural or repricing issues.

anyways, absolute returns can be adjusted by leverage so you are not locked into a given level of return. all that matters is creating an optimal portfolio. once that is done, you can tune it up and down to a risk level that suits your target (you can take a .7 SR and target 4% risk, or 10% risk vs. a .3 SR that, at the same risk targets, would return less than half the excess return per unit risk).

it doesn't pay to make broad based statements about things you do not fully understand without any qualificaitons and then cite a book on gambling where investing and diversification isn't discussed in enough depth to cite that work as defense of your point.

[ QUOTE ]
You said interest rates rose too fast and they are in need of a rate cut? How would that not be the relative equivalent of saying the market is deflationary and in need of an inflation boost?

[/ QUOTE ]

if you can't see the very big difference between the two, then you clearly don't have an understanding of monetary issues. at least one that is deep enough to have this conversation.

just to give you a hint though:

inflation rate= the rate of increase of prices

deflation rate= the rate of decrease of prices

low inflation != deflation.

[ QUOTE ]
[ QUOTE ]
I never said indices are mispriced. I will restate what I said more clearly. Stock averages grow over time not because of "mis-pricing" but because underlying broad market growth is productivity growth. Broad indices capture that productivity growth and are therefore expected to be profitable (and have proven to be in the past).


[/ QUOTE ]



Future earnings are attempted to be priced into securities. If indicies rise over an extensive time they are mispriced in the past.

Not every index is destined to do well over time either.

[/ QUOTE ]

neither of these is totally right. broad based indices of bonds, stocks, TIPS, etc. can all be expected to outperform risk free allocations due to capitalism.

capitalism returns the taking of risk, otherwise, risk would never be taken. an investor can allocate money to the risk free rate OR to an equity index. if the equity index couldn't be expected to return more than the risk free rate, no investor would put money in companies that require more capital to grow or invest or whatever they want capital for.

this excess return above the risk free rate is called a risk premium. it is the difference between risk free rate of return and the total return on an asset class (or broad index or whatever).

you can allcoate to a diverse set of asset classes and be sure that, over time, you will be rewarded to taking risk by allocating money to those asset classes. the construction of your portfolio will determine the relative risk adjusted return, but even an undiversified portfolio will return more than cash, otherwise, nobody would invest init.

these facts have held true historically and a consultant (Rocaton) has made numerous attempts at calculating exact risk premiums over time. they have 2 charts that are very instructive. the first one shows the linear relationship between risk and returns of asset classes (except commodities). the line is basically a 45degree line up from the origin.

the second one brings all those asset classes to the same risk level as equities and then plots the risk vs. return. this time, all asset classes come in at the same level of return of equities giving a sharpe ratio of between 0.2 and 0.3 (as one would expect).

another reason this makes sense is because if one asset class could be expected to perform better over time, more money would pile into that asset class and thus reduce its future expected returns. eventually, the opposite would occur as you see that asset class returning less than previously expected due to increased allocation to it. this process of arbitraging asset classes should (and has and is expected to) keep all available asset classes in the same risk adjusted return ballpark.

there are things that can reduce that risk adjusted return though as i mentioned. one example is if all pension funds in teh world switched 5% of their allocation to commodities. that would drive down (and possibly into negative territory) the sharpe ratio of commodities and make them a poorer choice for diversification going forward. another example is in the IL bond market in the UK where pension plans are forced (by law) to match their assets and their liabilities. that has resulted in a large allcoation to UK ILs and thus pushed down the future expected return a bit relative to US TIPS.

Barron

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You were right, when he starts out with maintaining that managing risk and increasing profits are mutually exclusive, and goes further and tries to relate it to an article that debunks strategies with formulaic money management schemes like "stop losses" ,any further discussion is pointless.

My major clients (two $4 billion funds, one $800 million fund and one $500 million fund) are approaching .7 Sharpe ratios without significant leverage using portable alpha strategies to replace traditional long equities. The portable alpha managers are restricted on their use of leverage. Admittedly they are relatively conservative with targeted alpha in the 5-7% range so the .7 range is a bit easier to achieve, though.

One of the portable alpha managers is coming in sometime in the next month or two to pitch increasing their allocation by demonstrating strategies to increase the duration of the assets without leverage, and without the traditional immunization strategies based on cash flow matching. I assume its something like porting in alpha from long bonds but capturing beta from long equities?

(sorry for the hijack, but i dont want to get involved in the BFI forum...this one kills enough time!)

Re: The Federal Reserve: Love it or Hate it
 

Copernicus,

i when say sharpe ratio, i mean passive allcoations (excluding portable alpha)

with alpha allocations, you can increase your overall portfolio risk adjusted returns to above 0.7.

anyways, the reason leverage is necessary to get to a sharpe ratio iwth passive allocations is explained above.

[/hijack] [img]/images/graemlins/smile.gif[/img]

Barron