Sunday, 31 October 2010

Irony

I regularly get together with a couple of guys from my church. We've been going over a book titled "Twelve Steps for Recovering Pharisees". It's main theme is that we are pretty much all hard-wired to find ways be judgmental twerps who try to make ourselves feel superior to those around us. So this cartoon from XKCD hit the spot.

Thursday, 28 October 2010

Inflation? What Inflation?

Buttonwood notes that commodities have been on a tear lately:
Higher wheat and metals price have been hitting the headlines, so it is no surprise that the all-items index is up 8.4% on the last month. It is more surprising that it has risen 28.1% over the last year. Furthermore, this is not a boom that is driven by oil. The crude price has only risen 10.2% over the last year.
Buttonwood then asks a question:
Ben Bernanke warned last week that the level of inflation was too low for comfort. Indeed, the core rate is just 0.8%. Why aren't higher commodity prices showing up in the CPI?
Buttonwood answers the question:
In part, this is down to lags; in part, it's down to the relatively small weight of commodities within the index. But it may be down to methodology. John Williams at Shadow Government Statistics runs an inflation measure that ignores all the methodological changes that have been made to the CPI since 1980; this has inflation running at 8.5%. A separate measure that ignores changes since 1990 has inflation running at 4.4%.
But then Buttonwood questions the answer:
My feeling is that, if inflation were as understated as the Shadow numbers suggest, it would have shown up somewhere else in the numbers (by analogy, if a company is fiddling its profits numbers, the evidence will probably show up in the cashflow figures). No-one is suggesting that the annual wage growth numbers are artificially low. So if prices have been rising much faster than wages, wouldn't that show up in declining consumer demand?
Buttonwood’s conclusion is that the understatement of CPI is not that big an issue.

I disagree, and here’s why. The period in question also happens to be a period of dramatic increase in the availability (and utilization) of consumer credit. Coincidence? I think not. Prices rose but wages did not; the only way to plug the gap was for the consumer to become ever more leveraged.

And then, the crash: after credit dried up in 2008, “declining consumer demand” is precisely what we have seen. It all fits.

Wednesday, 27 October 2010

Who's Pegged To Whom?

I find it revealing that when China hiked interest rates last week, the USD promptly rallied. Of course the rally was short-lived, but it confirms a suspicion I have long held: it's not the renminbi that is pegged to the dollar, it's the dollar that's pegged to the renminbi.

(Aside: treating the US and China as a single economic entity -- albeit one with large internal imbalances and frictions -- is a very useful construct when thinking about global trade flows. Maybe some day I will write a longer post about the implications of such a world-view).

(Another aside: quite a few macro traders believe in the DGDF (dollar goes down forever) hypothesis, for very good monetarist / inflationary reasons. But in my opinion the dollar won't really begin to decline until it is delinked from the world's fundamentally strongest currency.)

The Return of the Meta-Finance Blogger

Hello to all my faithful readers, and my apologies for the long hiatus. Apart from the usual excuses (being busy, being lazy, being otherwise inclined), the main reason I've written just 3 blog posts in all of 2010 is that quite frankly, global markets have been pretty boring, year-to-date. But that seems like it's changing; the last couple of months have seen some quite interesting dynamics take root. I plan to address a few of these in coming posts.

But with a difference: instead of my old style of writing lengthy disquisitions on particular subjects, I am going to try shorter and snappier posts which will hopefully nonetheless be interesting and insightful. And I am going to write more explicitly about topical issues (aka "market commentary") rather than sticking solely to abstract generalizations. As always, reader feedback (positive or negative, ha ha) is very welcome. Happy reading!

Sunday, 24 October 2010

I Don't Seem To Have a Lot of Empathy

I just took an empathy test (the Baron-Cohen Empathy test) - I scored a 23. A high-functioning Autistic or someone with Aspergers typically scores about a 20. Maybe my wife is right, and I am simply not that empathetic. However, she could have been kidding (if so, how would I know?).

HT: Vox Popoli

Saturday, 16 October 2010

Conversations

If you have followed this blog for long, you know that my favorite saying about teaching is "Teaching does not come from years of doing it. It actually comes from thinking about it." Unfortunately, it is easy to get trapped into thinking superficially about teaching. “Why are students so lazy?” “Why can’t students read?” “Why do students seem incapable of thinking?” I’m not sure that kind of thinking does anyone much good.

A few days ago, a friend and I had a long conversation about teaching, just a general conversation about what works and what doesn’t work for us. We talked about our goals and our frustrations. When is the last time you had such a conversation? Really, a conversation about how teaching is actually done. Find someone in your building or in your school who truly likes to think and talk about teaching and make it a point to have such conversations on a regular basis.

As part of my recent conversation, the question was raised (now that we are half-way through the current semester) as to what we expect from our students each day. My now we have trained them (either on purpose or by accident). When you walk into your classroom, what do you actually expect to get from your students? If all you expect is for them to sit there quietly and take notes, you will probably get your wish. But, shouldn’t learning require more than that from students? If all students have to do is sit quietly and take notes, then education by television or the Internet is the way to go.

My answer to that particular question, after a bit of thinking, was that I wanted three things from my students.

First, I want them to be engaged. I want them on the edge of their seats ready to participate at the drop of a hat. I don’t like comfortable students. Comfortable students tend to be lazy students. Comfortable students don’t seem to like to do the depth of thinking that I want.

Second, I want the students engaged 100 percent of the time. One of my all-time favorite teaching books is One L. Scott Turow, the author, talks about his first year at Harvard Law School and this famous teacher who taught by the Socratic Method. He made the point that everyone was on the edge of their seats practically holding their breath until the first student was called on. The teacher had the habit of interrogating that one student for the rest of the hour. Therefore, after the first question, every other student started to daydream or think about other classes. When I read that 20 years ago, I thought it was ridiculous. I don’t want one student to be engaged. I want all of them to be engaged all of the time. My classes are 50 minutes long – I’m convinced that people (even young college students) can stay focused for that period of time.

Third, as I have said often in this blog, I want my students prepared. I think 100 percent of good teaching has to start with student preparation. College is for deep thinking and complex learning. When I ask students about a capital lease or a deferred income tax, there is no possibly way they can come up with a legitimate response off the top of their head. This has to be something they have thought about and considered in advance. Without the preparation, what are we able to do in class? Darn little.

It was a good conversation about teaching. I went back to my own teaching with some new insights into what others think as well as what I think. You don’t need those conversations every day but it is hard to get better as a teacher without some of those conversations.

Monday, 11 October 2010

New Video on Time Value

As I mentioned before, I've been doing a bit of work with screen recording software. Previously, I'd done a 4-video series on how to use the BA 2+ calculator. Well, I'm at it again.

This semester, I'm teaching the undergraduate core finance. I plan on making a series of videos on the main topics that I can then use in upper-level courses. That way, I can eliminate the need to take valuable class time for going over prior material. Instead, if the students feel the need for a review on (for example) Effective Annual Rates, they can simply watch the video. Eventually, I hope to have a library of videos on many of the major topics we cover in the intro course.

Here's the first one - on the basics of Time Value. This one covers problems and concepts related to Present/Future Values of single lump sums. If you find it helpful, let me know.

You can see my other videos at the following site - the BUS424 folder contains a number of lectures I made for my Fixed Income class. Feel free to use and share them.

Monday, 4 October 2010

It Is An Honor

My good friend Paul Clikeman furnished me with these lines from Pat Conroy's book The Prince of Tides. This is the way that we should all feel every day when we have the good fortune of being able to go into a classroom to try to help our students to work and learn and understand.

Savannah Wingo: "You sold yourself short. You could’ve been more than a teacher and a coach."

Tom Wingo: "Listen to me, Savannah. There’s no word in the language I revere more than teacher. My heart sings when a kid refers to me as his teacher and it always has. I’ve honored myself and the entire family of man by becoming one.