John At The Center

We’re in a race to see whether politics will become the dominant means of allocating financial wealth in this country. That could be the single biggest domestic issue today, but too few economists are speaking up about it.

That’s Tyler Cowen. http://www.marginalrevolution.com/marginalrevolution/2008/12/one-ray-of-ligh.html

I really think that by improving the quality of their information on some of these assets, wealth can be allocated not through politics but through markets.

SecondMarket, Inc. provides online securities and stocks trading services. The company’s suite enables auction-rate securities, bankruptcy claims, private company stock, restricted securities in public companies and other illiquid assets trading services. Additionally, it offers monetization strategies, hedging strategies, issuer services, and administrative and settlement support services. The company caters to investment banks, issuers, insiders, hedge funds, mutual funds, private equity and venture capital firms, and money managers. SecondMarket, Inc. was formerly known as Restricted Stock Partners, Inc. and changed its name to SecondMarket, Inc. in September 2008

http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=24282038

The $8.85 trillion held in cash, bank deposits and money- market funds is equal to 74 percent of the market value of U.S. companies, the highest ratio since 1990, according to Federal Reserve data compiled by Leuthold Group and Bloomberg.

“There is a store of cash out there that is able to take the market higher,” said Eric Bjorgen, who helps oversee $3.4 billion at Leuthold in Minneapolis. “The same dollar you had last year buys you twice as much S&P 500 as it did a year ago.”

http://www.bloomberg.com/apps/news?pid=20601213&sid=ablBbCLneo6o&refer=invest

With a clean interface that features well laid-out modules (upcoming stories, categories, etc.), Tip’d looks less like Digg and more like a blog. But I’m pretty ambivalent about the design as it’s the content that’s had me scanning Tipd at least twice a day over the past three weeks. I find 3-5 headlines that grab my attention each day, of which maybe two are worth reading. Rarely do I find an article I would archive, as truly quality content is sparse.

http://gigaom.com/2008/12/26/tools-to-use-tipd-a-financial-social-news-service/

Pablo Triana sends me an open letter he’s written to the Swedish central bank, telling them to please stop giving out Nobel prizes in economics to “flawed, unworldly, and dangerous theoretical finance constructs”

Taleb places a lot of blame on Var models in risk management but that tells me he is clueless about how these things are really used in risk management.

If you know anything about this function or how it was implemented at many organizations, you should know that it wasn’t the model, but the people behind it that should be blamed. Remember the NYT article on Citi?

In general, judgement is very important in management– it’s what separates the good managers from bad. Just because greed clouded judgement en masse doesn’t mean that one particular tool should be blamed.

http://www.portfolio.com/views/blogs/market-movers/2008/12/27/why-give-nobels-for-financial-economics?tid=true

Krugman outlines the basic relationship between an inverted yield curve and investors’ expectations on economic growth/contraction.

The reason for the historical relationship between the slope of the yield curve and the economy’s performance is that the long-term rate is, in effect, a prediction of future short-term rates. If investors expect the economy to contract, they also expect the Fed to cut rates, which tends to make the yield curve negatively sloped. If they expect the economy to expand, they expect the Fed to raise rates, making the yield curve positively sloped.

The lower bound of zero throws a wrench into this equation.

http://krugman.blogs.nytimes.com/2008/12/27/the-yield-curve-wonkish/

Alex Tabarrok says we’re asking the wrong question:

What’s interesting about these statements is not so much whether they are right or wrong (let’s just say that it depends) but that Krugman and DeLong are so immersed in the Keynesian viewpoint that they cannot even see any other way of looking at the issue. Thus “even the critics” and “but surely we believe,” as if no other view were conceivable.

What, does he say, is the right question?

Well if the only frame you can see is the “spending increases employment” frame then whether the spending is private or public may seem like a niggle. But many of the critics of mass fiscal stimulus have an alternative frame in mind, namely, that “employment increases spending.”

I think the key difference here is on a long term expectations on income effects. Long term, permanent changes drives changes in behavior, while short term, temporary changes do not.

http://www.marginalrevolution.com/marginalrevolution/2008/12/macroeconomics.html

According to the research, once a liquidity crisis passes, other factors come to the fore, and securities that have risen in price, like Treasury bonds, are then likely to perform poorly. By contrast, the best performers will be those securities that have lost the most during past credit crises — not just during the current one. Convertible bonds and junk bonds are two obvious categories that should do particularly well, but others, including stocks, should also benefit.

http://www.nytimes.com/2008/12/28/your-money/28stra.html

“It’s free money,” said Richard Gates, a portfolio chief at money manager TFS Capital. “It’s a neat inefficiency in the marketplace, and dark pools are growing tremendously in size.”

Dark pools are electronic venues where funds can buy and sell blocks of shares without publishing bids or offers. Technically, they aren’t exchanges, but they work in the same fashion, matching buyers and sellers. The funds value the anonymity of the dark pools and the fact that trades aren’t public until after their execution. That way, their orders do not push the price of the stock away from them, at least in theory.

http://blogs.wsj.com/marketbeat/2008/12/26/gaming-in-dark-pools/

what a great quote

“This recession has more in common with the pre-WWII era. However, most of the data we have and most of the analysis still being conducted is done within the context of post-World War II cycles. That will not work, as this is a balance sheet recession and not just within the confines of the financial sector, but within the broad US household sector. This involves debt repayment and asset liquidation, and for the first time in recorded history, the entire $70 trillion household balance sheet is in the process of shrinking.”

http://macroblog.typepad.com/macroblog/2008/12/are-modern-rece.html