Sunday, September 30, 2012

Buffett's secret

Low beta + leverage. The leverage is obtained cheaply via Berkshire's insurance and reinsurance business. But I wonder whether low beta investing practiced algorithmically (i.e., without Buffet's stock picking skill, just taking a representative sample of low beta companies, or using some simple selection method) would work. I haven't yet read the AQR paper below and wonder how they adjust for "quality factors". Can I do that too?
Buffet's Alpha

Berkshire Hathaway has a higher Sharpe ratio than any stock or mutual fund with a history of more than 30 years and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha become statistically insignificant when controlling for exposures to Betting-Against-Beta and quality factors. We estimate that Berkshire’s average leverage is about 1.6-to-1 and that it relies on unusually low-cost and stable sources of financing. Berkshire’s returns can thus largely be explained by the use of leverage combined with a focus on cheap, safe, quality stocks. We find that Berkshire’s portfolio of publicly-traded stocks outperform private companies, suggesting that Buffett’s returns are more due to stock selection than to a direct effect on management.
More from the Economist.
Economist: ... Yet the underappreciated element of Berkshire’s leverage are its insurance and reinsurance operations, which provide more than a third of its funding. An insurance company takes in premiums upfront and pays out claims later on; it is, in effect, borrowing from its policyholders. This would be an expensive strategy if the company undercharged for the risks it was taking. But thanks to the profitability of its insurance operations, Berkshire’s borrowing costs from this source have averaged 2.2%, more than three percentage points below the average short-term financing cost of the American government over the same period.

A further advantage has been the stability of Berkshire’s funding. As many property developers have discovered in the past, relying on borrowed money to enhance returns can be fatal when lenders lose confidence. But the long-term nature of the insurance funding has protected Mr Buffett during periods (such as the late 1990s) when Berkshire shares have underperformed the market.

These two factors—the low-beta nature of the portfolio and leverage—pretty much explain all of Mr Buffett’s superior returns, the authors find. Of course, that is quite a different thing from saying that such a long-term performance could be easily replicated. As the authors admit, Mr Buffett recognised these principles, and started applying them, half a century before they wrote their paper.
See also If you're so smart, why aren't you rich?

Saturday, September 29, 2012

"Net-zero" housing

Unfortunately, the build cost is estimated at $600-800k. I'm more interested in the (presumably cheaper) insulation technologies than in the solar panels. See here for energy usage by housing type; a significant chunk of total US energy consumption goes to heating and cooling buildings.
Atlantic Monthly: ... NIST believes that this home – with 10 kilowatts of photovoltaic panels on the roof, and another four solar thermal panels over the front porch – will generate as much energy as a four-person family can consume in a year. This is, in other words, a “net-zero” house.

Wednesday, September 26, 2012

Moneyball in academia

(See Moneyball by Michael Lewis.)

Let's suppose you're trying to hire a star STEM researcher. For our purposes, define "star" as someone who is roughly top 10% in his or her department at a good research university. Although assistant professors are hired in a very competitive process, the success rate for hiring stars in good (but not the very top ranked) departments is (by definitions given above) only about 10%.

Let's suppose you wait a while to do your hiring. Look only at researchers who have already been professors for 5-10 years (i.e., at other schools), and have a significant track record of grants, papers, citations, etc. It seems plausible that at this stage of career (late assistant and early associate professors) one can pick out top 10% candidates with reasonably high accuracy.

Suppose that, on average, researchers in the top 10% bring in $400k more per year than the average professor (e.g., one additional NIH grant). This generates about $200k per year in additional overhead return to the university, which is much greater than the salary bump required to bid such a person away from their home university. If the difference in startup cost between hiring a new assistant professor and someone with 5-10 years experience is, say, $500k, then it would take only a few years to recoup this cost. The numbers have to be adjusted for different fields (in physics the overhead differential might be less, like $100k per year), but the expected return still seems attractive if you can keep the researcher for at least 5 or possibly 10 years.

Seems like an arbitrage opportunity, no?

Tuesday, September 25, 2012

Genetic prediction for Autism

This could be a good early example of genetic prediction for a moderately complex trait (e.g., controlled by hundreds or a thousand or so loci). Data from 3,346 individuals with ASD and 4,165 of their relatives from Autism Genetic Resource Exchange (AGRE) and Simons Foundation Autism Research Initiative (SFARI).
Predicting the diagnosis of autism spectrum disorder using gene pathway analysis (Nature Molecular Psychiatry)

Skafidas E, Testa R, Zantomio D, Chana G, Everall IP, Pantelis C.

Centre for Neural Engineering, The University of Melbourne, Parkville, VIC, Australia.

Autism spectrum disorder (ASD) depends on a clinical interview with no biomarkers to aid diagnosis. The current investigation interrogated single-nucleotide polymorphisms (SNPs) of individuals with ASD from the Autism Genetic Resource Exchange (AGRE) database. SNPs were mapped to Kyoto Encyclopedia of Genes and Genomes (KEGG)-derived pathways to identify affected cellular processes and develop a diagnostic test. This test was then applied to two independent samples from the Simons Foundation Autism Research Initiative (SFARI) and Wellcome Trust 1958 normal birth cohort (WTBC) for validation. Using AGRE SNP data from a Central European (CEU) cohort, we created a genetic diagnostic classifier consisting of 237 SNPs in 146 genes that correctly predicted ASD diagnosis in 85.6% of CEU cases. This classifier also predicted 84.3% of cases in an ethnically related Tuscan cohort; however, prediction was less accurate (56.4%) in a genetically dissimilar Han Chinese cohort (HAN). Eight SNPs in three genes (KCNMB4, GNAO1, GRM5) had the largest effect in the classifier with some acting as vulnerability SNPs, whereas others were protective. Prediction accuracy diminished as the number of SNPs analyzed in the model was decreased. Our diagnostic classifier correctly predicted ASD diagnosis with an accuracy of 71.7% in CEU individuals from the SFARI (ASD) and WTBC (controls) validation data sets. In conclusion, we have developed an accurate diagnostic test for a genetically homogeneous group to aid in early detection of ASD. While SNPs differ across ethnic groups, our pathway approach identified cellular processes common to ASD across ethnicities. Our results have wide implications for detection, intervention and prevention of ASD.

It looks like they used a quasi-linear ("superadditive") prediction model after using biochemical pathway analysis to restrict to a subset of candidate genes. It doesn't matter how you get the candidate genes -- all that matters is that you obtain predictive power.
Predicting ASD phenotype based upon candidate SNPs

For each individual, a 775-dimensional vector was constructed, corresponding to 775 unique SNPs identified as part of the GSEA. To examine whether SNPs could predict an individual’s clinical status (ASD versus non-ASD), two-tail unpaired t-tests were used to identify which of the 775 SNPs had statistically significant differences in mean SNP value (P<0.005). This significance level provided low classification error while maintaining acceptable variance in estimation of regression coefficients for each SNP’s contribution status, and provided the set of SNPs that maximized the classifier output between the populations (Fig 2 and S2). This resulted in 237 SNPs selected for regression analysis. Each dimension of the vector was assigned a value of 0, 1 or 3, dependent on a SNP having two copies of the dominant allele, heterozygous or two copies of the minor allele. The ‘0, 1, 3’ weighting provided greater classification accuracy over ‘0, 1, 2’. Such approaches using superadditive models have been used previously to understand genetic interactions.

These results, if they hold up, demonstrate just how much information is thrown away in conventional GWAS with 5E-08 "genome wide" significance thresholds (i.e., P<0.05 over 1E06 SNPs). In the conventional methodology a SNP is only considered a "hit" if significance exceeds this threshold, and "total variance accounted for" by the aggregate of all hits is typically modest (although in the case of height the total is getting fairly large now). This conservative approach reduces the number of false hits (i.e., which do not replicate) that plagued human genetics a decade ago, but does not maximize (squanders a lot of) predictive power.

The approach taken here first selects 775 SNPs of interest based on pathway information (not considered in standard GWAS) and then only requires 5E-03 significance. A linear predictor is formed from the 237 SNPs that pass this threshold. The ultimate test is, of course, whether the predictor actually works on (independent) validation samples. Once you have a statistically valid predictor, it doesn't matter how you arrived at it.

The key is the additional information used in the initial guess. If one could cleverly narrow down the set of variants for intelligence to, say, 10k (e.g., by looking at the loci at which modern humans differ from neanderthals or other earlier ancestors), and then test that subset for, e.g., 1E-04 significance, the resulting predictor *might* be able to reliably distinguish high g individuals from low g individuals. When will this approach be tried out? Stay tuned.

Sunday, September 23, 2012

MSU photos 3

Click for larger versions.

Biomedical and Physical Sciences Building:

Another big game.

Midwestern skies.

"... the good things just don’t get shown to Western investors"

Via Maoxian.
Financial Review: ... “The trade over the past two years has been to be short China and go long Chinese corruption,” he says.

The trade has been a winner, with commodity prices weakening and Chinese stocks cooling. “But Macau casinos, and companies that sell $500,000 watches and $3000 a bottle cognac have been very strong. These are straight derivatives of Chinese corruption,” Hempton says.

Bronte has a strong track record picking Chinese frauds on global exchanges in sectors including cement, travel, medical products and education. By its estimates, it has successfully shorted more than 40 Chinese stocks.

“We really do have a hard time finding one that is honest, and we sincerely want to so we can hedge our short positions. There are a lot of good things going on in China. But the good things just don’t get shown to Western investors.”

Male and female science professors equally gender biased

This study (PNAS) surveyed 127 professors of biology, chemistry and physics, asking them to evaluate resumes of potential lab managers. Half the pool received a particular resume with a male name and the other half with a female name -- the applications were otherwise identical. There was a significant preference for male applicants over female applicants, and, strikingly, this preference was independent of the gender of the evaluator (professor).

Click for larger figure.

I've always felt that gender plays a big role in academic careers. Men in my field are much more likely to bluff, win arguments by intimidation, oversell results, etc. Usually if a woman says she understands a result or calculation, she really does.

See also Women in the Classroom.

Thursday, September 20, 2012

BGI acquires Complete Genomics

The biotech industry is, collectively (despite the occasional wins), a huge net destroyer of investor capital. That Complete Genomics was able to go public in 2010 (NAS: GNOM) is crazy: both their business model and technology were unproven -- but that's biotech investing! BGI paid a startup price for a NASDAQ company ... Word on the street: over $100M invested by VCs pre-IPO, with a > $100M raise in the IPO float.
NYTimes: Complete Genomics, a struggling DNA sequencing company in Silicon Valley, said on Monday that it had agreed to be acquired for $117.6 million by BGI-Shenzhen, a Chinese company that operates the world’s largest sequencing operation.

The price of $3.15 a share represents an 18 percent premium to Complete Genomics’ closing price on Friday and a 54 percent premium to the closing price on June 4, the day before the company announced that it would fire 55 employees to save cash and that it had hired an adviser to explore strategic alternatives.

The deal, which will be carried out by a tender offer, is the latest sign of consolidation in the rapidly changing and fiercely competitive market for DNA sequencing. The price of determining the DNA blueprint of a person is tumbling and sequencing is starting to be used for medical diagnosis, not just for basic research. ...
See earlier post Physicists can do stuff. Despite the poor outcome for investors, Complete Genomics did develop good technology that will further the science of genomics. This is a very competitive space, and most companies that make sequencing breakthroughs will have a tough time putting it all together: bioinformatic services, sample handling, etc. (on these factors no one can beat BGI's cost advantages). They'll either have to make it in the hardware business or sell themselves to someone like BGI.

Today's WSJ has an article on success rates for venture backed startups. The claim is that 3/4 fail to return investor capital. I suspect the actual success rate is even lower (IIRC from earlier studies).

Monday, September 17, 2012

Swedish height in the 20th century

Average height of Swedish military conscripts during the 20th century. Looks like an increase of roughly 1 cm per decade or about 1.5 SD in one century. Not unlike the Flynn Effect over the same period.

It was important to generate this curve so that we could properly z score heights of individuals from different birth cohorts. Thanks to my collaborator Laurent Tellier.

Heckman and social mobility

Great discussion at Marginal Revolution of the debate in Boston Review between James Heckman (economics Nobelist) and others about social mobility and public policy. Heckman admits that cognitive ability is hard to change through early intervention, but wants to argue that "non-cognitive skills" (e.g., conscientiousness, rule-following, long term planning, etc.) can be inculcated. His evidence, however, seems restricted to two small sample size studies.

Heckman also appears in a recent This American Life broadcast.

... life success depends on more than cognitive skills. Non-cognitive characteristics—including physical and mental health, as well as perseverance, attentiveness, motivation, self-confidence, and other socio-emotional qualities—are also essential. While public attention tends to focus on cognitive skills—as measured by IQ tests, achievement tests, and tests administered by the Programme for International Student Assessment (PISA)—non-cognitive characteristics also contribute to social success and in fact help to determine scores on the tests that we use to evaluate cognitive achievement.

Second, both cognitive and socio-emotional skills develop in early childhood, and their development depends on the family environment. But family environments in the United States have deteriorated over the past 40 years. A growing fraction of our children are being born into disadvantaged families, where disadvantage is most basically a matter of the quality of family life and only secondarily measured by the number of parents, their income, and their education levels. And that disadvantage tends to accumulate across generations.

Third, public policy focused on early interventions can improve these troubling results. Contrary to the views of genetic determinists, experimental evidence shows that intervening early can produce positive and lasting effects on children in disadvantaged families. This evidence is consistent with a large body of non-experimental evidence showing that the absence of supportive family environments harms childhood and adult outcomes. Early interventions can improve cognitive as well as socio-emotional skills. They promote schooling, reduce crime, foster workforce productivity, and reduce teenage pregnancy. And they have much greater economic and social impact than the later interventions that are the focus of conventional public policy debate: reducing pupil-teacher ratios; providing public job training, convict rehabilitation programs, adult literacy programs, and tuition subsidies; and spending on police. In fact, the benefits of later interventions are greatly enhanced by earlier interventions: skill begets skill; motivation begets motivation.

Saturday, September 15, 2012

Hooking up on campus

Atlantic writer Hannah Rosin thinks hookup culture is "... an engine of female progress — one being harnessed and driven by women themselves." Commenter at the Atlantic site: "This isn't feminism - this is just a case of women becoming more like douchebag men. Casual sex is fine, but it's hard to argue that people's increasing detachment from each other is a sign of progress."

Review of Rosin's book, The End of Men.

See also The New Dating Game.
Atlantic Monthly: ... I had gone to visit the [Ivy League] business school because a friend had described the women there as the most sexually aggressive he had ever met. Many of them had been molded on trading floors or in investment banks with male-female ratios as terrifying as 50-to-1, so they had learned to keep pace with the boys. Women told me stories of being hit on at work by “FDBs” (finance douche bags) who hadn’t even bothered to take off their wedding rings, or sitting through Monday-morning meetings that started with stories about who had banged whom (or what) that weekend. In their decade or so of working, they had been routinely hazed by male colleagues showing them ever more baroque porn downloaded on cellphones. Snowblowing was nothing to them.

In fact, I found barely anyone who even noticed the vulgarity anymore, until I came across a new student. She had arrived two weeks earlier, from Argentina. She and I stood by the bar at one point and watched a woman put her hand on a guy’s inner thigh, shortly before they disappeared together. In another corner of the room, a beautiful Asian woman in her second year at school was entertaining the six guys around her with her best imitation of an Asian prostitute—­“Oooo, you so big. Me love you long time”—winning the Tucker Max showdown before any of the guys had even tried to make a move on her. (She eventually chose the shortest guy in the group to go home with, because, she later told me, he seemed like he’d be the best in bed.)

... Single young women in their sexual prime—that is, their 20s and early 30s, the same age as the women at the business-­school party—are for the first time in history more success­ful, on average, than the single young men around them. They are more likely to have a college degree and, in aggregate, they make more money.

... In 2004, Elizabeth Armstrong, then a sociologist at Indiana University, and Laura Hamilton, a young graduate student, set out to do a study on sexual abuse in college students’ relationships. They applied for permission to interview women on a single floor of what was known as a “party dorm” at a state university in the Midwest. ...

Women in the dorm complained to the researchers about the double standard, about being called sluts, about not being treated with respect. But what emerged from four years of research was the sense that hooking up was part of a larger romantic strategy, part of what Armstrong came to think of as a “sexual career.” For an upwardly mobile, ambitious young woman, hookups were a way to dip into relationships without disrupting her self-development or schoolwork. Hookups functioned as a “delay tactic,” Armstrong writes, because the immediate priority, for the privileged women at least, was setting themselves up for a career. “If I want to maintain the lifestyle that I’ve grown up with,” one woman told Armstrong, “I have to work. I just don’t see myself being someone who marries young and lives off of some boy’s money.” Or from another woman: “I want to get secure in a city and in a job … I’m not in any hurry at all. As long as I’m married by 30, I’m good.”

The women still had to deal with the old-fashioned burden of protecting their personal reputations, but in the long view, what they really wanted to protect was their future professional reputations. “Rather than struggling to get into relationships,” Armstrong reported, women “had to work to avoid them.” (One woman lied to an interested guy, portraying herself as “extremely conservative” to avoid dating him.) Many did not want a relationship to steal time away from their friendships or studying.

Armstrong and Hamilton had come looking for sexual victims. Instead, at this university, and even more so at other, more prestigious universities they studied, they found the opposite: women who were managing their romantic lives like savvy headhunters. “The ambitious women calculate that having a relationship would be like a four-credit class, and they don’t always have time for it, so instead they opt for a lighter hookup,” Armstrong told me.

The women described boyfriends as “too greedy” and relation­ships as “too involved.” One woman “with no shortage of admirers” explained, “I know this sounds really pathetic and you probably think I am lying, but there are so many other things going on right now that it’s really not something high up on my list … I know that’s such a lame-ass excuse, but it’s true.” The women wanted to study or hang out with friends or just be “100 percent selfish,” as one said. “I have the rest of my life to devote to a husband or kids or my job.” Some even purposely had what one might think of as fake boyfriends, whom they considered sub–marriage quality, and weren’t genuinely attached to. “He fits my needs now, because I don’t want to get married now,” one said. “I don’t want anyone else to influence what I do after I graduate.” ...

Friday, September 14, 2012

Last days in Oregon

The junk on my whiteboard when I cleaned out my UO office.

Physics building (home of perhaps the largest Feynman diagram in the world):

Buy my house:

Thursday, September 13, 2012

"People ... do not want to think probabilistically"

Highly recommended profile Obama's Way by Michael Lewis:
Vanity Fair: ... “Nothing comes to my desk that is perfectly solvable,” Obama said at one point. “Otherwise, someone else would have solved it. So you wind up dealing with probabilities. Any given decision you make you’ll wind up with a 30 to 40 percent chance that it isn’t going to work. You have to own that and feel comfortable with the way you made the decision. You can’t be paralyzed by the fact that it might not work out.” On top of all of this, after you have made your decision, you need to feign total certainty about it. People being led do not want to think probabilistically. [emphasis mine]
See also Bounded cognition.

Here's a great interview with Michael Lewis, who shadowed Obama off and on over an 8 month period.

Tuesday, September 11, 2012


DOE's ARPA-E in The Atlantic.

I think ARPA-E is a great idea. Civilizations almost always under-invest in basic research. Applied research for which there is a near term possibility of economic payoff tends to be reasonably well supported by the market if institutions such as venture capital or corporate R&D are well-developed. However, increase the expected timescale for economic return by a few additional years and suddenly the amount of non-governmental funding available drops precipitously.
The early days at ARPA-E were pretty insane. Its first couple of employees had to put out its first solicitation, and it was inundated with 3700 applications for its first 37 grants, which crashed the federal computer system. But they attracted an absurdly high-powered team of brainiacs: a thermodynamics expert from Intel, an MIT electrical engineering professor, a clean-tech venture capitalist who also taught at MIT. The director, Arun Majumdar, had run Berkeley's nanotechnology institute. His deputy, Eric Toone, was a Duke biochemistry professor and entrepreneur. Arun liked to say that it was a band of brothers; I like to think of it as a $400 million Manhattan Project tucked inside the $800 billion stimulus.

... So far, more than a dozen ARPA-E-funded companies have already attracted follow-up venture funding. They're very excited about 1366 Technologies, which has developed a new solar manufacturing process. Basically, instead of slicing silicon ingots like salami, which is a difficult way to make wafers and wastes a lot of silicon dust, they're creating the wafers directly from liquid silicon like pancakes, which could cut the price of solar panels by a third. The other big winner so far is Envia Systems, which has developed the world's most powerful lithium-ion battery; it could slice $5000 off the cost of the second-generation Chevy Volt. But there are all kinds of exciting projects: lithium-air batteries that could put lithium-ion out to pasture someday, wind turbines shaped like jet engines, electric transformers the size of a suitcase instead of a kitchen, laser drilling technology that could cut costs of geothermal wells as well as petroleum wells. We'll see what pans out.

AIG accounting

It looks like Treasury will make a profit on its AIG bailout stake. As I emphasized in 2008, markets were clearly not pricing credit-related assets properly during the crisis. Strong EMH supporters take note (see also here).
NYTimes: ... The Treasury Department announced it planned to sell $18 billion of its A.I.G. stake, putting it on a path to actually turn a profit. It was a remarkable feat and one that nobody — including Treasury Secretary Timothy F. Geithner — anticipated four years ago at the peak of the crisis during the $180 billion bailout of the company.
"Nobody"? -- not so fast! Here's what I wrote in 2008:
If -- and it's a big if -- AIG's actual CDS payouts are limited, the government and taxpayers stand to make a lot of money over the next 3-5 years. When markets return to normal the profitable ordinary insurance parts of AIG can be liquidated to pay off the bridge loan. In that scenario the big losers are AIG shareholders -- the government, as the lender of last resort, will have bought a distressed AIG for a song.
More AIG stuff here. Misuse of EMH arguments can hurt your brain.

Sunday, September 09, 2012

Spatial structure of SNP distributions

The figure above is taken from A model-based approach for analysis of spatial structure in genetic data (Nature Genetics). The paper develops a novel method for extracting geographical origin from SNP data. (However, the panels I display show the results of standard PCA analysis.) An interesting aspect of the method in the paper is that it allows to identify specific genes with a large spatial gradient in allele frequency, which could be a signal for selection. Here is the distribution of scores on this gradient measure (e.g., LCT controls lactose tolerance). Someone should look up the SPA scores of height-associated alleles from GIANT. (Table 4 in the Supplement lists the top 0.1% of SNPs by SPA score.) Click images for larger versions.

Big Science

A member of the ENCODE genomics project (440 scientists working in 32 groups, who recently explicated much of the non-coding region of human DNA) talks to an LHC physicist (CMS: 2000+ scientists from 155 institutions) in this Nature podcast.

Despite the shock and awe of big science, I share Wigner's sadness at the modern necessity of specialization.
But it is sad to lose touch with whole branches of physics, to see scientists cut off from each other. Dispersion theorists do not know axiomatic field theory; cosmologists do not know nuclear physics. Quantum mechanics is hard to explain to a chemist ... and yet the best theoretical chemists really ought to know quantum mechanics. 
Specialization of science also robbed us of much of our passion. We wanted to grasp science whole, but by then the whole was something far too vast and complex to master. Only rarely could we ask the deep questions that had first drawn us to science.
Luis Alvarez (one of the greatest experimentalists of all time) on large collaborations:
My observations of the young physicists who seem to be most like me and the friends I describe in this book tell me that they feel as we would if we had been chained to those same oars. Our young counterparts aren't going into nuclear or particle physics (they tell me it's too unattractive); they are going into condensed-matter physics, low-temperature physics, or astrophysics, where important work can still be done in teams smaller than ten and where everyone can feel that he has made an important contribution to the success of the experiment that every other member of the collaboration is aware of. Most of us do physics because it's fun and because we gain a certain respect in the eyes of those who know what we've done. Both of those rewards seem to me to be missing in the huge collaborations that now infest the world of particle physics.

NYC Bed Bugs

NYC Bed Bug Registry. resource.
Recent Bed Bug Reports for New York City

September 09

Sheraton New York Hotel And Towers I stayed @ Sheraton Towers for 2 nig
Hilton Times Square I've been staying with my family at Hilton Times Sq

September 08

Vanderbilt YMCA Stayed here for three days in August, 2012 and came hom
101 Cooper St Dear Tenant from the 5th floor north side, Perhaps if

September 07

455 E 14th St
Paramount Hotel
300 W 49th St

September 06

19 Hamilton Ter
50 Murray St
Dream Hotel
Salisbury Hotel

Trivia credit to anyone who can remember the character Bed Bug EddieMore.

Friday, September 07, 2012

The choice

I liked Obama's speech last night -- especially that he actually called for shared sacrifice for the greater good. It didn't quite rise to the level of "Ask not ..." but I suppose that would have been cliche.
... This is the choice we now face. This is what the election comes down to. Over and over, we have been told by our opponents that bigger tax cuts and fewer regulations are the only way; that since government can't do everything, it should do almost nothing. If you can't afford health insurance, hope that you don't get sick. If a company releases toxic pollution into the air your children breathe, well, that's just the price of progress. If you can't afford to start a business or go to college, take my opponent's advice and "borrow money from your parents."

You know what? That's not who we are. That's not what this country's about. As Americans, we believe we are endowed by our creator with certain inalienable rights— rights that no man or government can take away. We insist on personal responsibility and we celebrate individual initiative. We're not entitled to success. We have to earn it. We honor the strivers, the dreamers, the risk-takers who have always been the driving force behind our free enterprise system— the greatest engine of growth and prosperity the world has ever known.

But we also believe in something called citizenship— a word at the very heart of our founding, at the very essence of our democracy; the idea that this country only works when we accept certain obligations to one another, and to future generations.

We believe that when a CEO pays his autoworkers enough to buy the cars that they build, the whole company does better.

We believe that when a family can no longer be tricked into signing a mortgage they can't afford, that family is protected, but so is the value of other people's homes, and so is the entire economy. [[ This was cheap and wrong. Individual families have to take responsibility for the housing bubble. ]]

We believe that a little girl who's offered an escape from poverty by a great teacher or a grant for college could become the founder of the next Google, or the scientist who cures cancer, or the President of the United States— and it's in our power to give her that chance.

We know that churches and charities can often make more of a difference than a poverty program alone. We don't want handouts for people who refuse to help themselves, and we don't want bailouts for banks that break the rules. We don't think government can solve all our problems. But we don't think that government is the source of all our problems— any more than are welfare recipients, or corporations, or unions, or immigrants, or gays, or any other group we're told to blame for our troubles.

Because we understand that this democracy is ours.

We, the people, recognize that we have responsibilities as well as rights; that our destinies are bound together; that a freedom which only asks what's in it for me, a freedom without a commitment to others, a freedom without love or charity or duty or patriotism, is unworthy of our founding ideals, and those who died in their defense.

As citizens, we understand that America is not about what can be done for us. It's about what can be done by us, together, through the hard and frustrating but necessary work of self-government.

You'd be hedging too if you were a Chinese billionaire

Ill-gotten gains + giant real estate bubble in China + limited liquid investment options = windfall for top international cities such as Manhattan, LA and London.

If the RMB were allowed to float, the short term effect could easily be a decline relative to the dollar, as Chinese investors rush to diversify their portfolios.
NYTimes: ... The explosion of wealth in China has created myriad new billionaires eager to diversify their holdings with real estate investments in the United States. Often, they are looking to give their children a plush crash pad for boarding school or college, or a place to live in when they start careers and families. Many wealthy Chinese are also looking for places to invest where they can preserve their wealth and avoid the rising inflation in major Chinese cities like Shanghai and Beijing.

... The old way of doing business is no longer enough, Ms. Field said. “We as Americans always expected anyone to adapt to our business style, and they did,” she said. “That is no longer true with the Chinese. There are too many of them, they have too much power. We truly must adapt to their style of business in order to do deals.”

... Chinese billionaires continue to buy high-end properties in buildings like the Time Warner Center, 15 Central Park West and the newest, One57. But in May and June she saw something different: an “almost overwhelming volume” of calls and sales driven largely by interest in apartments ranging from $3 million to $6 million — what Ms. Lenz calls the “middle market” in Manhattan.

Chinese buyers are also no longer paying all cash as they were a few years ago. In recent months, several Chinese buyers have financed their purchases, some with United States-based loans, Ms. Lenz said. They seem to be leveraging in New York so they can also buy properties in Los Angeles, London or other cities, she said.

On her trips to China, Ms. Field has noticed a change in the conversation among potential clients. “When I first went over there five years ago, my presentations all had to be about return,” she said.

“Everyone was looking for returns. Two years ago, return questions almost dried up. Now it is all about wealth preservation. They are anticipating a bubble” in China, she added.

Thursday, September 06, 2012

Sterilization and ECB quantitative easing

Draghi's ECB initiative of bond buying through "Outright Monetary Transactions" was accompanied by a statement that purchases would be entirely sterilized. I think this implies limitations on the capacity of the program, although I haven't thought it through carefully yet.

Markets were up substantially on this news, which I had heard predicted already over the summer by Wall St. types.
WSJ: ... Sterilization helps the ECB distinguish its plan from the quantitative easing programs of the Federal Reserve and the Bank of England, which are explicitly aimed at supporting the money supply. However, the “Outright Monetary Transactions” still resemble “QE” programs in as much as both tend to depress bond yields, lowering the most important reference interest rates for the economy.

It’s a fine point, but one that the ECB hoped would persuade the arch-monetarist thinkers at the Deutsche Bundesbank that it was still acting within its mandate. They were wrong. Within two hours, the Deutsche Bundesbank issued a statement reaffirming that its President Jens Weidmann, the only person to disagree with the plan, still considers bond purchases “too close to financing states via the printing press.”

In principle, “sterilization” is a process that ensures that individual actions by the central bank don’t result in an overall increase in the money supply. Monetarist theory dictates, after all, that it is excessive monetary growth that leads to inflation, which is what the ECB is exclusively mandated to guard against. ... As of today, the precautionary hoarding of reserves by euro-zone banks is so great that banks are holding over €770 billion in excess reserves in accounts at the ECB, voluntarily “sterilizing” money the ECB created without forcing it to lift a finger.

... The ECB is sterilizing another €209 billion by paying only 0.01% on the deposits it auctions. In the current environment, it does not seem like the ECB would struggle to withdraw from the market any amount of liquidity it wanted to. Even so, the numbers implicit in the ECB’s new bond-buying scheme are daunting. Excluding treasury bills, there are some €390 billion in Italian bonds that fall due in the next three years.

For Spain, the number is €203 billion, for Portugal and Ireland combined, another €50 billion, according to national debt agency data. In all, a total of over €640 billion. Of this, it seems likely that the ECB already holds — and sterilizes — a large part of its €209 billion SMP portfolio. There are no precise data yet on the ECB’s holdings, but only around 40 billion euros is accounted for by Greece.

Thus the amount that the ECB needs to sterilize could easily double or treble from its current level. This may incline it to sterilize more over a longer time-frame of a month or three months or even more, so as to reduce the potential for volatility in the money market. The ECB has already examined such options internally two years ago, but chose not to proceed.

Monday, September 03, 2012

MSU photos 3

Houses on lakes.

This cafeteria reminds me of the Googleplex.

Cloud Atlas movie

This New Yorker piece describes the Wachowskis' adaptation of Cloud Atlas, coming soon to a theatre near you.

In an earlier post I wrote about the Sonmi 451 chapters of the book, which describe a dystopian future and genetically-engineered "fabricants":
My vote for best recent dystopian fiction featuring genetic engineering goes to the An Orison Of Sonmi 451 chapters of David Mitchell's Cloud Atlas. Can't wait to see the big budget movie. Will they retain the Korean peninsula setting?

Honorable mention: Margaret Atwood's Oryx and Crake.
The trailer is visually beautiful, but the complexity of the plot might be challenging for most viewers.

From the book:
Popular wisdom has it that fabricants don’t have personalities. This fallacy is propagated for the comfort of purebloods.

“Comfort”? How do you mean? To enslave an individual troubles your consciences, Archivist, but to enslave a clone is no more troubling than owning the latest six-wheeler ford, ethically. Because you cannot discern our differences, you believe we have none. But make no mistake: even same-stem fabricants cultured in the same wombtank are as singular as snowflakes. ...

Did your second day outside provide any answers? Some: but yet more surprises. The first stood across the anteroom from my cot as I awoke. A pylonic man, over three meters tall and dressed in an orange zipsuit, was studying the bookshelves. His face, neck, and hands were scalded red, burnt black, and patched pale, but he did not seem to suffer pain. His collar confirmed he was a fabricant, but I could not guess his stemtype: lips genomed out, ears protected by hornvalves, and a voice deeper than any I heard before or since. ...

Sunday, September 02, 2012

A dean's apologia

Stanley Fish's 2004 essay in the Chronicle of Higher Education on the life of a university leader. Fish was Dean of the College of Liberal Arts and Sciences at the University of Illinois at Chicago. I don't agree with everything in the essay, but it's worth reading.
What Did You Do All Day?

By Stanley Fish

Of the many complaining questions that faculty members ask, the one I used to hear most often was, "Why do you administrators make so much more money than we do?" The answer is simple: Administrators work harder, they have more work to do, and they actually do it.

Now that I have made the passage back from administrator to faculty member, I know how true that is. Where before my calendar was crowded and even double-booked, now the largely empty pages beckon me forward to a life of comparative ease and downright leisure. Sure, I have some students to teach, and some papers to correct, and I chair a committee and go to a few meetings and write columns and essays; but I did all of that when I was a dean in addition to everything I did because I was a dean.

I was responsible for a college with close to 30 departments and units, a budget of $50- to $55-million, 400 tenure-track faculty members, 700 staff employees, 10,000 undergraduates, 2,000 graduate students, and 17 buildings. On any given day, I had to deal with disciplinary proceedings, tenure and promotion cases, faculty searches, chair searches, enrollment problems, fund raising, community outreach, alumni relations, public relations, curriculum reform, counteroffers, technology failures, space allocation, information systems, department-head meetings, advisory-committee meetings, dean's-council meetings, meetings with the provost, student complaints, faculty complaints, parent complaints, taxpayer complaints.

Office hours were 8:30 a.m. to whenever and often extended into the evenings and weekends. Vacations were few and far between (although I did take much of the summer off, per agreement before I was hired). The pressure never let up.

The burden of those duties has now been lifted, and I come and go as I please. No one checks up to see where I am and what I am doing. I could, if I were asked, give the all-purpose, expected, and perfectly acceptable answer: "I always work at home."

... As an academic, you're trying to get ahead, she said, but as an administrator you're trying "to make things happen for other people." You're "not advancing your own profile," she added, "but advancing the institution, and you're more service-oriented."

"When I was a faculty member," she recalled, "I used to see administrators as adversaries who had the power to give and take but whose work lacked substance and intellectual interest. Now I think that what professors do is quaint and nice and should continue to go on, but basically they live a life that is infantilizing; administrators are grown-ups."

... [Administrators] have come to appreciate a form of activity that is at once intellectual (albeit in another tone) and productive of real results. They are pleased that they have learned to work together in a coordinated effort to solve extraordinarily complex problems. They are happy to be grown-ups and to have put away childish things, and they cast a rueful eye on the children whose wayward energies they must channel and manage.

Meanwhile (and this is where we began), they are paid well. But, of course, they pay a price, not only in the long hours and exhausting days, but also in the lost opportunity to pursue the projects for which they would have been rewarded by the academic community they serve.

Saturday, September 01, 2012

MSU photos 2

Touring a new building with the deans and provost.

MSU vs Boise State from the skyboxes. QB play was a bit shaky for the Spartans.

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