The Big Picture

How Tough Are You?
Spring Break for Nerds
Missing the Bigger Picture in the Reinhart & Rogoff Debate
The Making of Pink Floyd's The Dark Side of the Moon
The Making of Pink Floyd’s The Dark Side of the Moon
Economic Growth Stays Soft Q1 GDP = 2.5%
Twitter: Your First Source of Investment News
10 Weekend Reads
Weekly Eurozone Watch – Equity Ramp
The Making of Pink Floyd’s The Dark Side of the Moon

Posted: 28 Apr 2013 02:00 AM PDT

Rocky Balboa:

“Let me tell you something you already know. The world ain’t all sunshine and rainbows. It is a very mean and nasty place and I don’t care how tough you are, it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life…

But it ain’t about how hard you hit; it’s about how hard you can get hit, and keep moving forward. . It’s How much you can take, and keep moving forward. That’s how winning is done…
Now, if you know what you’re worth, then go out and get what you’re worth. But you gotta be willing to take the hits, and not point fingers and blame other people. Cowards do that and that ain’t you. You’re better than that!..!!!

This movie had a huge impact on me because what was said was so true in my own life. ” Its not how hard you hit, but how hard you can get hit and keep moving forward.”

Spring Break for Nerds

Posted: 28 Apr 2013 01:00 AM PDT

Source:
Spring Break for Nerds: A skeptic learns the secret to South by Southwest's success
NOREEN MALONE
New Republic, APRIL 26, 2013 http://www.newrepublic.com/article/112904/south-southwest-spring-break-nerds#

Missing the Bigger Picture in the Reinhart & Rogoff Debate

Posted: 27 Apr 2013 10:30 PM PDT

The "Excel Spreadsheet Error" In Context

You've heard that an incredibly influential economic paper by Reinhart and Rogoff (RR) – widely used to justify austerity – has been "busted" for "excel spreadsheet errors" and other flaws.

As Google Trends shows, there is a raging debate over the errors in RR's report:

Even Colbert is making fun of them.

Liberal economists argue that the "debunking" of RR proves that debt doesn't matter, and that conservative economists who say it does are liars and scoundrels.

Conservative economists argue that the Habsburg, British and French empires crumbled under the weight of high debt, and that many other economists – including Niall Ferguson, the IMF and others – agree that high debt destroys economies.

RR attempted to defend their work yesterday:

Researchers at the Bank of International Settlements and the International Monetary Fund have weighed in with their own independent work. The World Economic Outlook published last October by the International Monetary Fund devoted an entire chapter to debt and growth. The most recent update to that outlook, released in April, states: "Much of the empirical work on debt overhangs seeks to identify the 'overhang threshold' beyond which the correlation between debt and growth becomes negative. The results are broadly similar: above a threshold of about 95 percent of G.D.P., a 10 percent increase in the ratio of debt to G.D.P. is identified with a decline in annual growth of about 0.15 to 0.20 percent per year."

This view generally reflects the state of the art in economic research

***

Back in 2010, we were still sorting inconsistencies in Spanish G.D.P. data from the 1960s from three different sources. Our primary source for real G.D.P. growth was the work of the economic historian Angus Madison. But we also checked his data and, where inconsistencies appeared, refrained from using it. Other sources, including the I.M.F. and Spain's monumental and scholarly historical statistics, had very different numbers. In our 2010 paper, we omitted Spain for the 1960s entirely. Had we included these observations, it would have strengthened our results, since Spain had very low public debt in the 1960s (under 30 percent of G.D.P.), and yet enjoyed very fast average G.D.P. growth (over 6 percent) over that period.

***

We have never advised Mr. Ryan, nor have we worked for President Obama, whose Council of Economic Advisers drew heavily on our work in a chapter of the 2012 Economic Report of the President, recreating and extending the results.

In the campaign, we received great heat from the right for allowing our work to be used by others as a rationalization for the country's slow recovery from the financial crisis. Now we are being attacked by the left — primarily by those who have a view that the risks of higher public debt should not be part of the policy conversation.

But whether you believe that the errors in the RR study are fatal or minor, there is a bigger picture that everyone is ignoring.

Initially, RR never pushed an austerity-only prescription. As they wrote yesterday:

The only way to break this feedback loop is to have dramatic write-downs of debt.

***

Early on in the financial crisis, in a February 2009 Op-Ed, we concluded that "authorities should be prepared to allow financial institutions to be restructured through accelerated bankruptcy, if necessary placing them under temporary receivership."

Significant debt restructurings and write-downs have always been at the core of our proposal for the periphery European Union countries, where it seems to us unlikely that a mix of structural reform and austerity will work.

Indeed, the nation's top economists have said that breaking up the big banks and forcing bondholders to write down debt are essential prerequisites to an economic recovery.

Additionally, economist Steve Keen has shown that "a sustainable level of bank profits appears to be about 1% of GDP", and that higher bank profits leads to a ponzi economy and a depression. Unless we shrink the financial sector, we will continue to have economic instability.

Leading economists also say that failing to prosecute the fraud of the big banks is dooming our economy. Prosecution of Wall Street fraud is at a historic low, and so the wheels are coming off the economy.

Moreover, quantitative studies provide evidence that private debt levels matter much more than public debt. But mainstream economists on both the right and the left wholly ignore private debt in their models.

Finally, the austerity-verus-stimulus debate cannot be taken in a vacuum, given that the Wall Street giants have gotten the stimulus and the little guy has borne the brunt of austerity.

Steve Keen showed that giving money directly to the people would stimulate much better than giving it to the big banks.

But the government isn't really helping people … and has instead chosen to give the big banks hundreds of billions a year in hand-outs.

If we stopped throwing money at corporate welfare queens, military and security boondoggles and pork, harmful quantitative easing, unnecessary nuclear subsidies, the failed war on drugs, and other wasted and counter-productive expenses, we wouldn't need to impose austerity on the people.

And it is important to remember that neither stimulus nor austerity can ever work … unless and until the basic problems with the economy are fixed .

Indeed, stimulus and austerity are not only insufficient on their own … they are actually 2 sides of the same coin.

Specifically, the central banks' central bank warned in 2008 that bailouts of the big banks would create sovereign debt crises. That is exactly what has happened.

A study of 124 banking crises by the International Monetary Fund found that propping up banks which are only pretending to be solvent often leads to austerity:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions' liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.

***

All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government's fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.

In other words, the "stimulus" to the banks blows up the budget, "squeezing" public services through austerity.

Instead of throwing trillions at the big banks, we could provide stimulus to Main Street. It would work much better at stimulating the economy.

And instead of imposing draconian austerity, we could stop handouts to the big banks, stop getting into imperial military adventures and stop incurring unnecessary interest costs (and see this). This would be better for the economy as well.

Why aren't we doing this?

Profits are being privatized and losses are being socialized. So the big banks get to keep the mana from heaven being poured out of the stimulus firehose, while austerity is forced on the public who has to bear the brunt of Wall Street's bad bets.

The big banks went bust, and so did the debtors. But the government chose to save the big banks instead of the little guy, thus allowing the banks to continue to try to wring every penny of debt out of debtors. An analogy might be a huge boxer and a smaller boxer who butt heads and are both rendered unconscious … just lying on the mat. But the referee gives smelling salts to the big guy and doesn't help the little guy, so the big guy wakes up and pummels the little guy to a pulp.

Economists note:

A substantial portion of the profits of the largest banks is essentially a redistribution from taxpayers to the banks, rather than the outcome of market transactions.

Indeed, all of the monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else. See this, this and this.

(Obama's policies are even worse than Bush's in terms of redistributing wealth to the very richest. Indeed, government policy is ensuring high unemployment levels, and Obama – despite his words – actually doesn't mind high unemployment. Virtually all of the government largesse has gone to Wall Street instead of Main Street or the average American. And "jobless recovery" is just another phrase for a redistribution of wealth from the little guy to the big boys.)

We noted in 2011:

All of the monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else.

***

Economist Steve Keen says:

"This is the biggest transfer of wealth in history", as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.

Nobel economist Joseph Stiglitz said in 2009 that Geithner's toxic asset plan "amounts to robbery of the American people".

And economist Dean Baker said in 2009 that the true purpose of the bank rescue plans is "a massive redistribution of wealth to the bank shareholders and their top executives".

The money of individuals, businesses, cities, states and entire nations are disappearing into the abyss …

… and ending up in the pockets of the fatcats.

In other words – underneath the easing-versus-tightening debate – this is not a financial crisis … it's a bank robbery.

The Making of Pink Floyd's The Dark Side of the Moon

Posted: 27 Apr 2013 05:00 PM PDT

The most phenomenal recording in rock & roll history is thoroughly examined in Pink Floyd: The Dark Side of the Moon. The Floyd’s 1973 masterpiece remained on bestseller charts for nearly 14 years, and its enduring importance is honored here by all four members of Pink Floyd and key personnel (engineer Alan Parsons, mixing supervisor Chris Thomas, sleeve designer Storm Thorgerson, and others) who played essential roles in the landmark album’s creation. Produced for the Classic Albums series that originally aired on VH-1, this thorough and thought-provoking study highlights a track-by-track dissection of the LP’s master tapes (including the spoken-word passages that bookend the album), superbly interlaced with archival footage, early demo tapes, concert animations, and latter-day acoustic performances by David Gilmour, Roger Waters, and Richard Wright to demonstrate each track’s contribution to the final mix–a sonic exploration that extends to the illuminating bonus features

The Making of Pink Floyd’s The Dark Side of the Moon

Posted: 27 Apr 2013 05:00 PM PDT

Economic Growth Stays Soft Q1 GDP = 2.5%

Posted: 27 Apr 2013 12:00 PM PDT

~~Economic Growth Stays Soft~~

The ongoing corruption of Murdoch-run WSJ continues apace — If you just skimmed the headline, you might think the economy was in trouble.

I doubt anyone’s response to a headline that stated “Economic Growth Stays Soft” would be “I guess the economy is expanding at an annualized 2.5% pace. (as the content of the article makes clear). The headline, on the other hand, is pure Murdoch propaganda.

When are they going to spin the WSJ out away from the Murdoch journalistic wrecking crew?

Source:
Economic Growth Stays Soft
SUDEEP REDDY
WSJ, April 26, 2013
http://online.wsj.com/article/SB10001424127887323789704578446513668963282.html

Twitter: Your First Source of Investment News

Posted: 27 Apr 2013 07:00 AM PDT

How Twitter is becoming your first source of investment news
By Barry Ritholtz,
Washington Post April 21 2013

On Monday afternoon at 2:56 p.m., three hours after the fastest runner of the Boston Marathon crossed the finish line, my Twitter feed lit up. Someone in the office yelled "Two explosions at the Boston Marathon, may be terrorism." Within seconds, there were first hand reports, photos and even video circulating.

Not on CNN or Reuters or the Associated Press. On Twitter.

There was no other news reports for what seemed like a very long time. Nothing on Google News. Nothing else on the Web. It felt like a full 15 minutes before CNN reported it on cable (NPR seemed to have some early radio coverage). But in the 10 minutes after, Twitter had the only firsthand accounts of the tragedy in real time.

A quick intro: Twitter is a social-networking site where users share short texts limited to 140 characters (the cell phone text limit in the pre-smartphone days). There are now more than 200 million active users who crank out 400 million Tweets a day.

Twitter has become the "new" news wires. It has supplanted AP, Dow Jones and Bloomberg for breaking news. Even the Boston police confirmed "at least 22 injured, two dead" — by Tweeting it at 4:05 p.m.

This "Twitter Effect" is now common. Seal Team Six killing Osama bin Laden broke on Twitter. The uprisings of the Arab Spring were first covered via Twitter. So, too, was the death of former British prime minister Margaret Thatcher.

More and more, it seems that the first word we get about major events comes from the microblogging service.

Consider last week's story of economics professors Ken Rogoff and Carmen Reinhart. Their studies were the basis of much of the austerity movement in Europe and the United States, based on their claim that debt-to-GDP ratios over 90 percent are linked to much slower economic growth. But an academic study by Thomas Herndon, Michael Ash and Robert Pollin of the University of Massachusetts debunked it — turns out the profs had it backward, and that slower growth leads to more debt. A blog post by Mike Konzcal explaining the significance of this spread, through economists, then to the Wall Street strategist community, all via Twitter.

Are you sensing a pattern here? Getting more and more of our news from the social network is having significant repercussions for markets — and your money.

These sorts of obscure and wonky analyses never used to see the light of the day outside of academia. Today, however, Twitter has created interconnected communities of professionals that encourage these memes to spread fast and wide.

In less than seven years, Twitter has gone mainstream. Companies such as StockTwits have built entire networks on he Twitter platform, populated with several hundred thousand traders. (Disclosure: I am a venture investor in StockTwits.) Even the Bloomberg data service now has curated Twitter feeds on its terminals.

Twitter has become a powerful tool for traders, investors and journalists. Academia has noticed. Sandy Pentland and Yaniv Altshuler of the MIT media lab in Boston are trying to determine how investors are using Twitter to gain an edge in the markets. Traders are incorporating social media into their information consumption, and it is tremendously useful to them.

My thinking has evolved since I wondered in 2009 whether 140 characters might be replaced by even shorter communication services such as Grunter or Grimacer. Fast forward to this time last year, when I was suggesting Apple buy Twitter. That large shift in thinking came about because of how useful Twitter has become to me as an investor.

To put this into context, think back to the 1990s. It seems like a million years ago when people worked on huge trading floors with hundreds of colleagues — analysts, traders, salespeople. That camaraderie allowed for a flow of ideas among various employees. In techland, Steve Jobs even had the new Apple headquarters designed to encourage more accidental meetings among employees to encourage idea exchanges.

But Wall Street has downsized. Giant trading floors are now much smaller; exchange floors are smaller or closed. The professional interaction that was once the hallmark of finance seems to exist less these days as fewer people work on or for the big Wall Street firms.

Into this finance void came social media. It is much more than reconnecting with your long-lost bunkmates from summer sleep-away camp. Social media has allowed all sorts of like-minded people to find each other digitally.

One key factor is that Twitter is a meritocracy. In social media, people cannot build big followings organically unless what they are putting out to the world has value. The more valuable it is over time, the more followers you get. Twitter has become a group conversation of that type that used to take place on trading floors.

Who are you talking to all day? With Twitter, you can build your own virtual trading floor and research department, populated by the smartest people on earth. Almost any subject or sector has you can think of, you can find a few people with an expertise in that area. When Europe is blowing up, you probably cannot read all of the foreign language newspapers — but you can find and follow reporters who cover Cyprus or Greece locally.

Investment banks find they have become outgunned by dynamic, self-forming expert networks on Twitter. All transparent, in public, in real time.

Consider that there are always going to be more smart people outside of your firm than inside. It has to be that way mathematically — whether you are Google or Goldman Sachs, the outside world can create a team that is equal or superior to the best team at any firm.

You can take advantage of this by following the smart, informed experts on Twitter. Create your own research group — whether its in energy research, bio technology, macro economics, or even Cyprus banking. I like to use Twitter's search function to find people who have an expertise in these areas. It is an instant braintrust of global experts, highly ranked by their peers and Tweeps (Twitter followers).

Reporters have figured this out. They mine Twitter for sources, trends, ideas, information.

In fact, people who are active on Twitter can tell you what is going to be on the evening news before anyone else knows it. My colleague Josh Brown was named by Time magazine as one of the 140 Best Twitter Feeds of 2013. He phrased it thusly: "The evening news has become men in suits and women in pearls reading Twitter to your grandparents. Twitter is faster than print media, more in depth than television, and compared to the traditional newswire, its real time reaction to events news and headlines."

As always, a few caveats are in order. Simon Ricketts of the Guardian has noted that "Twitter does its best work in the first five minutes after a disaster, and its worst in the twelve hours after that." (@rolldiggity). Misinformation and error are not uncommon, especially in crisis situations.

Even the Securities and Exchange Commission has recognized the value of social media. It has been okayed for public shareholder announcements. StockTwits.com now releases quarterly earnings reports for many publicly traded companies directly to the followers of the stock tickers.

Twitter has gone mainstream. News and trading may never be the same.

~~~

Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of "Bailout Nation" and runs a finance blog, the Big Picture. On Twitter: @Ritholtz.

10 Weekend Reads

Posted: 27 Apr 2013 04:00 AM PDT

Here are my longer form — more in depth detailed journalism — weekend reads for your Saturday morning pleasure. Pour a cup of coffee and have at it:

• Everything Is Rigged: The Biggest Price-Fixing Scandal Ever (Rolling Stone)
• Talkin' 'bout a revolution: Why Occupy Wall Street Failed (FT.com)
• Facebook Leans In (Vanity Fair) see also The second coming of Facebook (CNNMoney)
• This Bud’s for You! Legal Pot in the U.S. (GQ.com)
• Bad Directors and Why They Aren't Thrown Out (NYT)
• The Rise of Big Data (Foreign Affairs) see also A Brief History of Applause, the ‘Big Data’ of the Ancient World (Atlantic)
• David Lee Roth Will Not Go Quietly (BuzzFeed)
• In The Dark: Dark matter is the commonest, most elusive stuff in the universe. Can we grasp this great unsolved problem in physics? (aeon)
• A Different World: How one small college is quitting sports — and might lead a revolution (SB Nation)
• The 50 Machines You Will Need to Rebuild Civilization (should it come to that) (Climateer Investing)

What are you doing this weekend?

Change in Real Wages since Q1 2000

Source: NYT

Weekly Eurozone Watch – Equity Ramp

Posted: 27 Apr 2013 03:00 AM PDT

Key Data Points
German 10-year Bund 4 bps lower;
France 1 bp tighter to the Bund;
Belgium no spread change;
Ireland 6 bps tighter;
Italy 12 bps tighter;
Spain 30 bps tighter;
Portugal 15 bps tighter;
Greece 4 bps tighter;

Large Eurozone banks weekly change, -10.60. to 10.42 percent;
Euro$ down 0.41 percent.

Comments

The German Bund is approaching its 1.127 percent low made last July;
Italy, Spain, and Ireland yields at lowest post-crisis weekly close;
The Bundesbank criticised the ECB's bond-buying programme designed to save the euro, questioning whether it is really necessary and suggesting it represents a great risk to taxpayers. – FT
Italy sold €8bn of six month treasury bills at a yield of 0.503%, down from 0.831% previously andthe lowest rate since the introduction of the euro. – Nick Fletcher, Guardian
Pimco, the world's biggest bond fund has been cutting its holdings of Italian and Spanish government debt after their recent rallies. – Grame Wearden, Guardian
Enrico Letta has been handed the mandate to form Italy's next government by president Giorgio Napolitano. – Grame Wearden, Guardian
Enrico Letta told reporters in Rome on Wednesday that his top priority was to tackle the "enormous, unbearable" economic emergency in Italy, in a signal that his government could change the pace of austerity. – Grame Wearden, Guardian
French unemployment rising by 1.2% to 3.225m, the 23rd monthly rise in a row worst level since records began in January 1996. – Grame Wearden, Guardian
Spain's joblessness has reached fresh heights over the first three months of the year with a record 27% of the workforce unemployed. – Giles Tremlett, Guardian

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