Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

Brucec42 -

My comment was lighthearted, but if you do wish to offer a serious rebuttal and you do seem to be serious here, may I make a suggestion? Employing this labored a caricature of your options (the "so many methods" cartoon list illustrated below) does not make a strong argument. More constructively why don't you reply to *T*'s posts on the question rather than mine? I notice you guys all seem to have steered a "wide berth" around his replies?

Quote:

Originally Posted by *T* I've given a strong argument and references elsewhere on these pages. ... See Mandelbrot's thesis for example. A pariah in Economics for his heresy ... he pretty much invented a whole new area of mathematics (fractals). ... The existence of a business cycle also implies long-range order. Minsky talked about expectations informing buying decisions. Soros also refutes the idea of an efficient market. ... My own opinion is that the use of credit in markets is what gives it these dynamics and price history. ... If the markets have no long-range order, you could make billions in the options markets. ... And whenever I say this, NO ONE has disagreed. So I issue the challenge, where am I wrong?

Well, there are only so many methods to choose from when making investment choices;

1. Subscribing to someone's website who uses technical analysis and bases the probability of market changes on purely historical data, the shape of particular squiggly lines, and the concept that markets are perfect, yet for only $19.95 or $49.95 a month they will share their sure fire weath strategy with me rather than simply placing all their money in futures contracts and becoming a billionaire in the next year.

2. Throwing stones on a table and interpreting what they augur for the future,

3. using a ouija board,

4. consulting Simon the "mentalist",

5. Reading tea leaves,

6. Trusting in magic beans

7. Spending hours researching the economy and using knowledge and fundamental analysis harvested by others over countless hours to try to predict the very unpredictable reactions of the market and government and try to beat them to a particular spot.


Unfortunately technical analysis was the least persuasive.

[vanvaley1]

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

Ah! Yes, but the successful man has made it a matter of importance that they have gleaned as much information, from as many sources as possible, to allow them to make a considered decision.

Then fnding it unnessary and too expensive to purchase tea they seek the augur of insight...and read the skid marks of their shorts.

[Chris Coles]

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

Came across this quote today and thought of your comments here *T*. Thanks again for interjecting some senior arguments on a topic I've long intuited was a good deal more complex than the putative "rationalists" so peremptorily insist. It's not the disagreement that gets under my skin - disagreement is a wonderful thing - it is the peremptory self assurance of the dismissals which lends an unattractive complexion to any supposedly genuinely inquiring discourse. The idea that markets really do have a structure is intriguing almost in proportion to the extent that it regularly finds ridicule.

Lukester, have you ever heard of the old saying: "Talk about the pot calling the kettle black"? But I have to admire your turn of phrase...

Work of Benoit Mandelbrot acknowledged - by Anatole Kaletsky

"Bit by bit, from a bad seed a big but sickly tree is built with glue, nails, screws and scaffolding. Conventional economics assumes the financial system is a linear, continuous, rational machine and these false assumptions are built into the risk models used by many of the world's banks. As a result, the odds of financial ruin in a free global market economy have been grossly underestimated.

By using such methods there is no limit to how bad a bank's losses can get. Its own bankruptcy is the least of the worries; it will default on its obligations to other banks - and so the losses will spread from one inter-linked financial house to another. Only forceful action by regulators to put a firewall round the sickest firms will stop the crisis spreading. But bad news tends to come in flocks and a bank that weathers one crisis may not survive a second or a third." "

This uncannily precise description of the present crisis above was not written by an economist. While some economists had warned for years about global trade imbalances, escalating house prices, of excessive consumer borrowing, none of them remotely foresaw the truly unprecedented feature of the present crisis: the total breakdown of financial markets caused by the unforced blunders by investors and banks.

Modern economists were inherently incapable of understanding such a problem because they assumed that investors were ‘rational’ and markets ‘efficient’. "These assumptions led inevitably to disaster once they were blown apart. The author who came so close to understanding the true causes of the present crisis was not an economist but a mathematician.

"Benoît Mandelbrot, a towering figure of 20th-century science, who invented fractal geometry and pioneered the mathematical analysis of chaos and complex systems, wrote the above words six years ago in his book The Misbehaviour of Markets. Mandelbrot's ideas found fruitful applications in the study of earthquakes, weather, galaxies and biological systems from the 1960s onward, but the field that originally inspired his ideas turns out, in this very readable book, to have been finance and economics.

Yet 40 years of effort by Mandelbrot to interest economists in the new mathematical methods, which appear to work far better in modelling extreme movements in financial markets than the conventional methods based on statistically ‘normal’ distributions, have been either ridiculed or ignored."

My problem here is twofold; Anatole Kaletsky has very consistently shown a classic economists false idea of what has happened in financial markets. He simply does not understand what has occurred. For example, it is very clear that he had no idea about the leverage going on, right beneath his proverbial nose. As a result he has been flailing about like a man drowning, grasping at straws for want of a solution.

My second reservation relates to my own thinking, that we have been "sold a pup" by the FIRE economy by being led into thinking that we have been operating within a capitalist system. That introduces the thought that, as with a computer, input junk and all you get at the other end is more of the same.

No, I am not depreciating Mandelbrot, but if we base his thinking on the self same misunderstanding about the nature of capitalism, we end up in the same mess; junk in junk out.

In my opinion, the problem is not the nature of the "market" for that is a classic red herring, it is our misunderstanding of the true nature of a feudal mercantile economy.

Chris.

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

I've given a strong argument and references elsewhere on these pages. ... See Mandelbrot's thesis for example. A pariah in Economics for his heresy ... he pretty much invented a whole new area of mathematics (fractals). ... The existence of a business cycle also implies long-range order. Minsky talked about expectations informing buying decisions. Soros also refutes the idea of an efficient market. ... My own opinion is that the use of credit in markets is what gives it these dynamics and price history. ... If the markets have no long-range order, you could make billions in the options markets. ... And whenever I say this, NO ONE has disagreed. So I issue the challenge, where am I wrong?

Came across this quote today and thought of your comments here *T*. Thanks again for interjecting some senior arguments on a topic I've long intuited was a good deal more complex than the putative "rationalists" so peremptorily insist. It's not the disagreement that gets under my skin - disagreement is a wonderful thing - it is the peremptory self assurance of the dismissals which lends an unattractive complexion to any supposedly genuinely inquiring discourse. The idea that markets really do have a structure is intriguing almost in proportion to the extent that it regularly finds ridicule.

_________________

Work of Benoit Mandelbrot acknowledged - by Anatole Kaletsky

"Bit by bit, from a bad seed a big but sickly tree is built with glue, nails, screws and scaffolding. Conventional economics assumes the financial system is a linear, continuous, rational machine and these false assumptions are built into the risk models used by many of the world's banks. As a result, the odds of financial ruin in a free global market economy have been grossly underestimated.

By using such methods there is no limit to how bad a bank's losses can get. Its own bankruptcy is the least of the worries; it will default on its obligations to other banks - and so the losses will spread from one inter-linked financial house to another. Only forceful action by regulators to put a firewall round the sickest firms will stop the crisis spreading. But bad news tends to come in flocks and a bank that weathers one crisis may not survive a second or a third." "

This uncannily precise description of the present crisis above was not written by an economist. While some economists had warned for years about global trade imbalances, escalating house prices, of excessive consumer borrowing, none of them remotely foresaw the truly unprecedented feature of the present crisis: the total breakdown of financial markets caused by the unforced blunders by investors and banks.

Modern economists were inherently incapable of understanding such a problem because they assumed that investors were ‘rational’ and markets ‘efficient’. "These assumptions led inevitably to disaster once they were blown apart. The author who came so close to understanding the true causes of the present crisis was not an economist but a mathematician.

"Benoît Mandelbrot, a towering figure of 20th-century science, who invented fractal geometry and pioneered the mathematical analysis of chaos and complex systems, wrote the above words six years ago in his book The Misbehaviour of Markets. Mandelbrot's ideas found fruitful applications in the study of earthquakes, weather, galaxies and biological systems from the 1960s onward, but the field that originally inspired his ideas turns out, in this very readable book, to have been finance and economics.

Yet 40 years of effort by Mandelbrot to interest economists in the new mathematical methods, which appear to work far better in modelling extreme movements in financial markets than the conventional methods based on statistically ‘normal’ distributions, have been either ridiculed or ignored."

[Chris Coles]

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

Ah! Yes, but the successful man has made it a matter of importance that they have gleaned as much information, from as many sources as possible, to allow them to make a considered decision.

[metalman]

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

Well, there are only so many methods to choose from when making investment choices;

1. Subscribing to someone's website who uses technical analysis and bases the probability of market changes on purely historical data, the shape of particular squiggly lines, and the concept that markets are perfect, yet for only $19.95 or $49.95 a month they will share their sure fire weath strategy with me rather than simply placing all their money in futures contracts and becoming a billionaire in the next year.

2. Throwing stones on a table and interpreting what they augur for the future,

3. using a ouija board,

4. consulting Simon the "mentalist",

5. Reading tea leaves,

6. Trusting in magic beans

7. Spending hours researching the economy and using knowledge and fundamental analysis harvested by others over countless hours to try to predict the very unpredictable reactions of the market and government and try to beat them to a particular spot.


Unfortunately technical analysis was the least persuasive.

'The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.'
- Jesse Livermore

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

No actually this was more about BruceC42 and Spartacus. Everybody knows you are 100% Normal.

Well, there are only so many methods to choose from when making investment choices;

1. Subscribing to someone's website who uses technical analysis and bases the probability of market changes on purely historical data, the shape of particular squiggly lines, and the concept that markets are perfect, yet for only $19.95 or $49.95 a month they will share their sure fire weath strategy with me rather than simply placing all their money in futures contracts and becoming a billionaire in the next year.

2. Throwing stones on a table and interpreting what they augur for the future,

3. using a ouija board,

4. consulting Simon the "mentalist",

5. Reading tea leaves,

6. Trusting in magic beans

7. Spending hours researching the economy and using knowledge and fundamental analysis harvested by others over countless hours to try to predict the very unpredictable reactions of the market and government and try to beat them to a particular spot.


Unfortunately technical analysis was the least persuasive.

[*T*]

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

not either random or astrology. all non probabilistic short term trading success is due to either 1. chance or 2. insider info.

That does not contradict my statements in any way.

[metalman]

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

A tour de force response, Mr. *T*. Notice the clamor of arguments pressed here to dispel your assertions. :rolleyes:

As you so delicately put it:

"To lump people like Mandelbrot together with astrologers is insulting to the serious academic work done and is plain ignorant. What we are presented is a straw man argument and dogma."

The simple but profound thesis, that a market can display order derived from it's own precedent apparently brutally violates some of the most cherished beliefs of those who insist that only "pure" randomness can correspond plausibly to market action. Such opinions inadvertently refute the potential for REAL complexity.

At the heart of this assumption is a lazy premise - that any assertions to the contrary are antithetical to "rationalism". I have tremendous respect for all dissenting contributors. But there is a certain amount of dogma reflected in such an opinion. Spartacus' subscribes to these refutations, but his suggestion in the post directly below was actually a quite valuable suggestion.

Employ a 'hypothetical" that is 180 degrees opposite to your own opinions regularly - otherwise you are not fully examining the risk that some opinions are based on mere assumptions. The more peremptory and sweeping assumptions are the riskiest.

not either random or astrology. all non probabilistic short term trading success is due to either 1. chance or 2. insider info.

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

A tour de force response, Mr. *T*. Notice the clamor of arguments pressed here to dispel your assertions. :rolleyes:

As you so delicately put it:

"To lump people like Mandelbrot together with astrologers is insulting to the serious academic work done and is plain ignorant. What we are presented is a straw man argument and dogma."

The simple but profound thesis, that a market can display order derived from it's own precedent apparently brutally violates some of the most cherished beliefs of those who insist that only "pure" randomness can correspond plausibly to market action. Such opinions inadvertently refute the potential for REAL complexity.

At the heart of this assumption is a lazy premise - that any assertions to the contrary are antithetical to "rationalism". I have tremendous respect for all dissenting contributors. But there is a certain amount of dogma reflected in such an opinion. Spartacus' subscribes to these refutations, but his suggestion in the post directly below was actually a quite valuable suggestion.

Employ a 'hypothetical" that is 180 degrees opposite to your own opinions regularly - otherwise you are not fully examining the risk that some opinions are based on mere assumptions. The more peremptory and sweeping assumptions are the riskiest.

He recommends that whatever position you normally champion, turn it off for a while and IN GOOD FAITH, do the opposite analysis.

I've given a strong argument and references elsewhere on these pages.

To summarise:
Either prices are Markov or they're not.

There is good, empirical evidence that prices are not Markov. Also that probability distributions of future price returns are not stable.

I used to market-make options for one of the top three US houses. Efficient market theory and Black-Scholes assumes the Markov property and stable distributions. In fact, volatility (i.e. options) trade with skew, and a term structure. A term structure to implied volatility implies mean reversion or trending. This implies dependence of price on price history. This is mathematically provable. And empirically, with the right kind of study. See Mandelbrot's thesis for example. A pariah in Economics for his heresy, where he started, he pretty much invented a whole new area of mathematics (fractals).

The existence of a business cycle also implies long-range order. Minsky talked about expectations informing buying decisions. Soros also refutes the idea of an efficient market.

My own opinion is that the use of credit in markets is what gives it these dynamics and price history.

If the markets have no long-range order, you could make billions in the options markets.

For an introduction, read for example A Non-Random Walk Down Wall St, a collection of serious academic studies on the issue.

I am NOT saying 'all technical analysis works'. I am NOT advocating use of astrology in investment.

I AM saying some technical analysis has verifiable empirical basis. And I AM saying that the received wisdom of Black-Scholes, efficient markets, rational expectations, stock returns as a Markov chain etc, is empirically WRONG.

To lump people like Mandelbrot together with astrologers is insulting to the serious academic work done and is plain ignorant. What we are presented is a straw man argument and dogma.

And whenever I say this, NO ONE has disagreed. So I issue the challenge, where am I wrong?

[lausanne]

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

Why consider the 382 point drop response to Geithner as proof of the unworkable nature of his proposal? Isn't the market looking to prop equity values up, ie don't see his announcement as helping them?

[labasta]

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy - Eric Janszen

I'm hearing so many cases of fraud worldwide at the moment. Has anyone picked up on the 1.3 billion dollar fraud in Iraq by the US military? I mean skimming form the top is all well and good, but plain out stealing the whole lot.. well...

Regarding Ireland.

I'm really pissed at the whole thing with the banks at the moment.

The directors of AngloIrish gave themselves non-recourse loans based on collateral of their own AngloIrish shares. One of these loans was for 87 million Euro. We are talking hundres of millions here. Fine right? Well when the bank goes bankrupt, the shares are worth nothing. They don't have to pay back the bank as the loans are non-recourse. In effect, they just stole the money for themselves.

Now, the ruling party (FF) use the bank for their own funds (apparently) and the finance minister took advice from the directors of the bank. He saves angloIrish bank by raiding the civil servants pension fund to the tune of 7 billion. This has been estimated to be nowhere near enough. Who tops up the missing 7 billion? Is it the directors? Noooo, of course not. The civil servants have to pay an extra pension levy of around (after tax) between 3.5 and 9% of gross income. This is at a time when pivate AND (although much less) public sector workers are losing their jobs and having their wages decreased. The ones with massive mortgages are taking a bigger hit. If mortgages can't be paid, the banks take the hit and so on.


Basically, what I am saying is that the ones who stole, frauded, created the mess are not paying for it but making off like bandits and leaving the rest of us to pay and become poorer.

It would have been the same if a few years ago during the bubble years the government had created an AngloIrish monthly tax levy of around 5% to be paid to the directors of AngloIrish bank directly.

I mean Germany has compulsory medical insurance (also known as a tax) to keep its med industry in lolly, why not the banks too. Let's have politically in their pocket industry taxes!

30% for the banks
20% for the med industries
5% for petroleum companies
10% other energy taxes
2% for the church of your choice

Can we think of any other industries which like to kept in the manner they are accustomed to?

Now, if only I could set up a company to pay off a load of politicians and create my own tax on the people.

[Down Under]

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

lowest spot on the tic? daily close? weekly average? monthly average? he doesn't say. question is... if you bought at $780 and gold fell to $700 before heading to $940 today, how'd you feel? better than if you waited for $700 and it fell to $500? better than the die hard deflationists who are still waiting for $650 to come around any day now?

no one ever calls a perfect bottom, except mega... but then we're not talking about gold in that case.

Before we get into some misunderstanding, I have tremendous respect for EJ and iTulip, along with many others.

However, since one of iTulip's claims is to be primarily data driven, I don't think it's accurate to state, unless qualified, that the low in gold was USD 740. It clearly was not.

Now, as you correctly point out, the USD 740 low was not qualified. It may well have been the low on a weekly or monthly basis. Fair enough.

[Spartacus]

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

No, just being extreme to make a point.

Are you saying it's a San Diego connection?...humm...maybe it's the water.

Well, OK - Maybe subconsciously ; )

[santafe2]

Re: Timmy Geithner the debt serf: Out of the pan and into the FIRE Economy

...why not this guy?

http://en.wikipedia.org/wiki/Heaven%27s_Gate_(cult))

Are you saying it's a San Diego connection?...humm...maybe it's the water.