As if I didn’t have enough things to worry about in my life already, here is the latest news. Via Slashdot

‘Death Star’ Aimed at Earth

“A spectacular, rotating binary star system is a ticking time bomb, ready to throw out a searing beam of high-energy gamma rays that could lead to a major extinction event — and Earth may be right in the line of fire. Australian science magazine Cosmos Magazine reports: ‘Though the risk may be remote, there is evidence that gamma ray bursts have swept over the planet at various points in Earth’s history with a devastating effect on life. A 2005 study showed that a gamma-ray burst originating within 6,500 light years of Earth could be enough to strip away the ozone layer and cause a mass extinction. Researchers led by Adrian Melott at the University of Kansas in Lawrence, U.S., suggest that such an event may have been responsible for a mass extinction 443 million years ago, in the late Ordovician period, which wiped out 60 per cent of life and cooled the planet.

Lev Pontryagin was a great mathematician. Anyone who has studied Optimal Control Theory has heard of him, for instance. What might be less well-known is that Lev Pontryagin lost his eyesight at age 14, and that he was able to learn mathematics only because his mother (Tat’yana Andreevna Pontryagina) read mathematical books to him. Impressive!

Pit your wits against other traders in forecasting future events, with the FT’s fantasy prediction market. www.ftpredict.com

Daily Net Asset Value for PIMCO Funds: PIMCO Institutional Funds Daily NAV

In the view of most voters, Sisyphus was lucky. Sure, his task of pushing a boulder up a hill every day wasn’t particularly productive, and it must have been frustrating to watch it roll down again after manhandling it to the summit. But at least he had work. This is the make-work bias – the idea that having a job
is more important than creating value effi ciently. When asked about higher productivity
in the abstract, voters are generally supportive. When asked about policies that “create
jobs,” however, voter concerns about productivity go out the window. Economists, on
the other hand, have known for a long time that productivity is good, even if it leads
to (temporary) unemployment. Technology, which is the main engine of productivity,
also creates jobs – different ones. In 1800, nearly 95 of every 100 Americans worked to
provide food for the country. Today, only three out of every 100 labor to produce food.
What are those other 97 Americans doing? Other jobs.

After Harrison Ford’s first performance as a hotel bellhop in the film Dead Heat on a Merry-Go-Round, the studio vice-president called him in to his office. “Sit down kid,” the studio head said, “I want to tell you a story. The first time Tony Curtis was ever in a movie he delivered a bag of groceries. We took one look at him and knew he was a movie star.” Ford replied, “I thought you were spossed to think that he was a grocery delivery boy.” The vice president dismissed Ford with “You ain’t got it kid , you ain’t got it … now get out of here.”

In Time of Tumult, Obscure Economist Gains Currency – WSJ.com

“Guinea pigs of the world unite. We have nothing to lose but our shirts,” – Minsky.

FT.com: Bring out the dart-wielding monkey

....sell-side stock analysts, who spend 50-80 hours a week on research and presumably have loads of information at their fingertips, are no better than a monkey with a dart at predicting a company’s five-year earnings growth rate. In fact, they are actually worse than a monkey with a dart because they tend to project the recent past into the distant future, rather than assuming growth will revert to the mean. If the analysts’ projections were simply random, the results may have been closer to reality

Malthus’s book is well known because it gave Darwin the idea of natural selection. Reading of the struggle for existence that Malthus predicted, Darwin wrote in his autobiography, “It at once struck me that under these circumstances favourable variations would tend to be preserved, and unfavourable ones to be destroyed. ... Here then I had at last got a theory by which to work.”

A good example of moral hazard is a nuclear power station built by former Philippine president Marcos that was constructed on an earthquake fault line in the province of Bataan in the Philippines. EXIM, a U.S. government backed Export Credit Agency, began negotiations with the Filipino government about a nuclear power plant that would be built by Westinghouse. Westinghouse won the contract by bidding $500 million. EXIM guaranteed the loan, ensuring that no matter the result, Westinghouse would be paid, removing any risk for Westinghouse. The actual project cost was $2.3 billion. Westinghouse was paid even though the plant could never go on-line as it was built on an earthquake fault line. Marcos, a known dictator, received $80 million commission from Westinghouse on the plant that he authorized, but did not pay for. The Filipino people pay this debt at a rate of $170,000 a day in interest and will continue to do so until 2018, even though they have not received even a single watt of energy. This project alone accounts for more than 5% of the country’s total debt

If you are going to swim in the shark tank, you’ve got to know where ALL the sharks are.

Information Arbitrage: Pricing Risk: Taking it all Into Account, and No Tears, Please

From the movie ‘Trainspotting’:

“Choose life. Choose a job. Choose a career. Choose a family. Choose a fucking big television, Choose washing machines, cars, compact disc players, and electrical tin openers. Choose good health, low cholesterol and dental insurance. Choose fixed- interest mortgage repayments. Choose a starter home. Choose your friends. Choose leisure wear and matching luggage. Choose a three piece suite on hire purchase in a range of fucking fabrics. Choose DIY and wondering who you are on a Sunday morning. Choose sitting on that couch watching mind-numbing spirit- crushing game shows, stuffing fucking junk food into your mouth. Choose rotting away at the end of it all, pishing your last in a miserable home, nothing more than an embarrassment to the selfish, fucked-up brats you have spawned to replace yourself. Choose your future. Choose life… But why would I want to do a thing like that?”

Doesn’t make sense at all! Paying $3.18B in an all-cash deal for an advertising company that has a bad rep? I think the Google co-founders just made a very rash decision in buying DoubleClick. I guess the founders of Google have already cashed-out of their Google stock. You can pretty much play with other people’s money when you have a few billions in the bank.

Slashdot | Google buys DoubleClick for $3.1 Billion

If you have it,you don’t need it. If you need it,you don’t have it. If you have it,you need more of it. If you have more of it,you don’t need less of it. You need it to get it. And you certainly need it to get more of it. But if you don’t already have any of it to begin with,you can’t get any of it to get started,which means you really have no idea how to get it in the first place,do you?...Wanting it,needing it,wishing for it…The point is,if you’ve never had any of it…people just seem to know

When someone with experience proposes a deal to
someone with money, too often the fellow with money ends up with the experience, and the fellow with experience ends up with the money.

• old adage

“It struck me that perhaps a lot of the people you see walking about are dead. We say that a man’s dead when his heart stops and not before. It seems a bit arbitrary. After all, parts of your body don’t stop working — hair goes on growing for years, for instance. Perhaps a man really dies when his brain stops, when he loses the power to take in a new idea. Old Porteous is like that. Wonderfully learned, wonderfully good taste– but he’s not capable of change. Just says the same things and thinks the same thoughts over and over again. There are a lot of people like that. Dead minds, stopped inside. Just keep moving backwards and forwards on the same little track, getting fainter all the time, like ghosts.”

– Coming Up for Air, by George Orwell

FT Alphaville » Blog Archive » Threats lurking behind the growth of complex finance

Modern finance is based on two key concepts. In very simple terms:

1) You split a given unit of risk into infinitesimally small units and spread it across time (from now into the furthest future)

2) And across space (to many people or entities as possible)

Everything else in finance is just built on top of these two concepts.

So this means that if the risk does pan out in the end, each person in the game loses very little at any given time. However, the question is “What will happen when there is systemic risk that affects the whole financial system?”

The value of derivatives in the the financial system now totals an astonishing 802 per cent of the world’s GDP, providing 75 per cent of global liquidity. Securitised debt is worth 142 per cent of global GDP, providing 13 per cent of liquidity.

...

The transfer of risk also introduces opacity – making it fiendishly difficult to see who might be left holding losses if a credit shock did occur or to prevent concentrations of credit risk developing in the system.

Paul Tucker, head of markets at the Bank of England, conceded in a speech last month that the Bank found it hard to interpret M4 - one of the broadest measures of money – because structured finance and hedge fund activity seemed to be distorting the data. Worse, banks’ balance sheets are no longer an accurate guide to activity either because banks are shuffling risk around. So what would happen in a financial crisis remains – as he put it – “unknowable”.

Right now there is little sign of an end to the credit party, nor it would seem to the mounting uncertainty about what might happen when the debt dance ends.

There won’t be any blog postings till the second week of January 2007. I will be travelling, hosting friends during the holidays, catching-up on long-pending personal work and spending quality time away from my Mac.

If you are a regular reader, check back by Jan 10th. Happy holidays!

Oh yeah…sign of the changing times ..baby..changing times!

Even the stiff upper lip and buttoned-up holiest of holy ‘The Economist’ now has a blog. I just can’t believe it. Though I am all for it, I just can’t believe it! My friends and regular readers of this blog know that I practically carry my weekly dead-tree ‘The Economist’ everywhere; to the gym, to my bed, in the subway and to the coffee table and sometimes even to the beach.

The online blog is called the Free exchange.