The Big Picture

Molecular Genetics and Subjective Well-Being
Kat Edmonson Covers ‘Just Like Heaven’
World GDP
How the US Recovery Measures Up
10 Friday AM Reads
Pre NFP Melt Up, European Rally Edition
Confidence Crisis
Fly a Real Fighter Jet for Fun
Taking Europe’s Pulse

Molecular Genetics and Subjective Well-Being

Posted: 06 Jul 2013 02:00 AM PDT

Kat Edmonson Covers ‘Just Like Heaven’

Posted: 05 Jul 2013 03:00 PM PDT

Kat Edmonson ‘Just Like Heaven’ from her 2009 album ‘Take To The Sky’

Previously:
Just Like Heaven (August 13th, 2010)
(A lovely cover of The Cure's Just Like Heaven from Katie Melua)

World GDP

Posted: 05 Jul 2013 11:30 AM PDT

Click to enlarge

Source: Economist

How the US Recovery Measures Up

Posted: 05 Jul 2013 08:30 AM PDT

Note: I am posting this before the June NFP report comes out

Click to enlarge

Source: WSJ

10 Friday AM Reads

Posted: 05 Jul 2013 06:30 AM PDT

Wow, thats a helluva number for NFP this morning. If you don’t have anything better to do, here are some non NFP related reads to keep you otherwise occupied while the rest of us slip away . . .

• Fedspeak: Complex Monetary Policy Spawns Flights of Metaphors (WSJ)
• Surprise! Inflation is too low almost everywhere on earth (Wonkblog)
• Krugman: 2/3rds of Americans live in metro areas with half-a-million or more residents (NYT)
• Do budget deficits cause inflation? (Mainly Macro) see also Sticky Prices vs. Sticky Wages: A Debate Between Miles Kimball and Matthew Rognlie (Supply-Side Liberal)
• In Connecticut, a struggle to launch Obamacare (WaPo)
• Basel Examines Banks' Diverging Views of Risk-Weighted Assets (Bloomberg)
• Thoughts on the future of finance blogging (FT Alphaville) see also Finance blogging is not for the faint of heart (Abnormal Returns)
• How to Have a Year that Matters (Harvard Business Review)
• Around the world in 20 gaffes (Telegraph)
• The New Barbecue (WSJ)

Whats up for the weekend?

When Countries Celebrate their Independence

Source: Economist

Pre NFP Melt Up, European Rally Edition

Posted: 05 Jul 2013 05:00 AM PDT

click for updated futures

Its a holiday weekend, so I am not going to detail all of the usual factors about NFP. Last month’s critique – ~~THE MOST IMPORTANT EVER NFP~~ blah blah blah — should be reread; You can see the past 1000 or so kvetching posts on the subject of NFP here).

The more interesting news is the sudden resurgency of embracing equities overseas. Following our 1pm close on Wednesday, Europe had a gangbusters rally — and we are set to follow suit.

One other thing to remember today: Rookies are manning the terminals. Anything can happen!

Me, I’m on the beach today — it looks gorgeous out . . .

BLS report is out at 8:30 am

~~~

Previously:
Apprenticed Investor: The Folly of Forecasting (June 8th, 2005)

NFP Day: The Most Over-Analyzed, Over-Emphasized, Least-Understood Data Point (February 4th, 2011)

An Unusually Unusual NFP Payroll Day! (June 3rd, 2011)

THE MOST IMPORTANT EVER NFP blah blah blah (June 7th, 2013)

Confidence Crisis

Posted: 05 Jul 2013 04:00 AM PDT

Cassandra Does Tokyo is a former hedge fund manager and ex NY Trader, who is now living abroad.

~~~

I am in a reflective mood, navigating, what one might call say, a crisis of confidence. What is the root of this self-doubt? I am, you see, squarely in my middle years, and as I look out at the vast pool of talent that makes up the market, I am coming to the conclusion that, like the writer who realizes he will never write a great novel, that I am just not very smart by comparison. Nor clever. And this is humbling.

When I started out in the business, despite my knowledge of delta-hedging portfolios of options, I wasn’t smart enough to dream-up of “portfolio insurance”, nor implement or encourage its deployment in any way. Truth be told, I am often intimidated by Maths PhDs, self-conscious over my incapacity for visualizing anything but the most basic of quadratic functions (I hit “the conceptual wall” in Linear Algebra). And I admit was jealous that I was unable comprehend the beautiful genius of mathematical formula’s and risk-analysis validating highly-leveraged (and crowded) carry trades, on for example, the Japanese Yen in 1998. And heaven knows I didn’t have the prescience (or wisdom) to ride the most rip-roaring and snorting of bull markets in internet and technology stocks, unlike so many other much-smarter-than-me investors.

It is apparent to me now that I wasn’t clever enough to understand the intricate business models or the unmitigated allure supporting the “merchant energy” craze, so I was never accused of being one of the smartest girls in the room, despite the untold billions flushed-away by Mirant, Dynegy, Calpine and Enron. I am so slow that CDOs didn’t even register with me until they were near their sell-by date, and never in a million years could I have been so wickedly sharp as to invent the idea of putting a wrapper on them to miraculously transmute a still-steaming pile of dung into scentless triple-A.

In the markets and strategies that I invest (quant equity long vs. short) I almost certainly am one of the dimmer bulbs, blind to the opportunities that applying 10x (or yet higher!!) leverage to crowded trades might afford my P&L, as it might have in the summer of 2007. Despite beginning my professional days in the bullion business, my feeble grey-matter could never have conceived of turning a gold-and-oil-heavy commodities basket cum “index” into a permanent portfolio allocation for pension funds across the USA – a genius ALMOST as brilliant as that which dreamed up the idea of encouraging housewives to buy a box of baking soda, take it home, to immediately flush it down the toilet!

Lacking the requisite creativity, I missed the chance to design something really useful for humanity, like Payament Protection Insurance. I am still in awe of the risk-management intellect behind tail-risk insurance funds. The savvy required to make these attractive when implieds were already highly elevated (historically) and the market had already more-than-a-halved is humbling. I often wonder how I’ve managed to compete at all! Then, if I wasn’t feeling stupid enough, I just need to take one look at luminaries like Galleon, Diamondback, or SAC. Top ivy-league schools, minted MBAs. IB training programs. Couple of years at Och-Ziff or Perry. These guys are so smart, and have had such good returns they just seem to know what is going to happen before it happens! And to think that for all these years, I’d never dreamed of the games one might play with LIBOR!

But far-and-away, the smartest guys, the ones whose certitude, sound logical reasoning, and mathematical notation are (to me) both most impressive and humbling to listen to are the guys (and they ARE guys for only guys can be this brilliant) touting risk-parity strategies. The engineers who’ve championed them sound soooo clever, and have so many academic letters following their name, one would just have to be a dolt NOT to want to adopt it for your pension plan. Really, who could quibble with the formulaic logic that miraculously gifts you a levered long bond position when it’s yield is as close to the ZLB as, ummm errrr, it’s EVER been??

It should be comforting to investors everywhere that so many of our best educated minds and brightest talents have chosen to serve investors’ interests with such forward-thinking creative imagination. The investment world thus appears meritocratic. In this hierarchy, simpleton’s seem to get what they deserve. Looking back to history, to President Carter’s “Crisis of Confidence” in 1979, his implied solution was imbued in “redemption” in the biblical sense. I cannot help but wonder whether investors today will discover the same solution with regards to risk-parity and its associated gamma-negativity.

Fly a Real Fighter Jet for Fun

Posted: 05 Jul 2013 03:00 AM PDT

Source: CNNMoney

Taking Europe’s Pulse

Posted: 05 Jul 2013 02:00 AM PDT

Click for interactive version