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Synchronized Boom, Synchronized Bust

http://online.wsj.com/art…6689503909.html

A narrative from Marc Faber in the WSJ on the boom/bust that was, including some astute commentary (That I happen to agree with) on how we got here.

But because interest rates during this time continuously lagged behind nominal GDP growth as well as cost of living increases, the Fed never truly implemented tight monetary policies. Indeed, total credit increased in the U.S. from an annual growth rate of 7% in the June 2004 quarter to over 16% in early 2007. It grew five-times faster than nominal GDP between 2001 and 2007.

The complete mispricing of money, combined with a cornucopia of financial innovations, led to the housing boom and allowed buyers to purchase homes with no down payments and homeowners to refinance their existing mortgages. A consumption boom followed, which was not accompanied by equal industrial production and capital spending increases. Consequently the U.S. trade and current-account deficit expanded — the latter from 2% of GDP in 1998 to 7% in 2006, thus feeding the world with approximately $800 billion in excess liquidity that year.

When American consumption began to boom on the back of the housing bubble, the explosion of imports into the U.S. were largely provided by China and other Asian countries. Rising exports from China led to that country’s strong domestic industrial production, income and consumption gains, as well as very high capital spending as capacities needed to be expanded in order to meet the export demand. An economic boom in China drove the demand for oil and other commodities up. Rapidly accumulating wealth allowed the resource producers in the Middle East, Latin America and elsewhere to go on a shopping binge for luxury goods and capital goods from Europe and Japan.

As a consequence of this expansionary cycle, the world experienced between 2001 and 2007 the greatest synchronized economic boom in the history of capitalism. Past booms — of the 19th century under colonial economies, or after World War II when 40% of the world’s population remained under communism, socialism, or was otherwise isolated — were not nearly as global as this one.

Another unique feature of this synchronized boom was that nearly all asset prices skyrocketed around the world — real estate, equities, commodities, art, even bonds. Meanwhile, the Fed continued to claim that it was impossible to identify any asset bubbles.

The cracks first appeared in the U.S. in 2006, when home prices became unaffordable and began to decline. The overleveraged housing sector brought about the first failures in the subprime market.

Sadly, the entire U.S. financial system, for which the Fed is largely responsible, turned out to be terribly overleveraged and badly in need of capital infusions. Investors grew apprehensive and risk averse, while financial institutions tightened lending standards. In other words, while the Fed cut the fed-funds rate to zero after September 2007, it had no impact — except temporarily on oil, which soared between September 2007 and July 2008 from $75 per barrel to $150 (another Fed induced bubble) — because the private sector tightened monetary conditions.

In 2008, a collapse in all asset prices led to lower U.S. consumption, which caused plunging exports, lower industrial production, and less capital spending in China. This led to a collapse in commodity prices and in the demand for luxury goods and capital goods from Europe and Japan. The virtuous up-cycle turned into a vicious down-cycle with an intensity not witnessed since before World War II.

Sadly, government policy responses — not only in the U.S. — are plainly wrong. It is not that the free market failed. The mistake was constant interventions in the free market by the Fed and the U.S. Treasury that addressed symptoms and postponed problems instead of solving them.

A Comeback for Lamarckian Evolution?

http://www.technologyreview.com/biomedicine/22061/

Some studies indicate that there are traits that can get passed on from mother to offspring that are extra-genetic — meaning they aren’t in the DNA. These are called epigenetic changes.

Fascinating.

In Feig’s study, mice genetically engineered to have memory problems were raised in an enriched environment–given toys, exercise, and social interaction–for two weeks during adolescence. The animals’ memory improved–an unsurprising finding, given that enrichment has been previously shown to boost brain function. The mice were then returned to normal conditions, where they grew up and had offspring. This next generation of mice also had better memory, despite having the genetic defect and never having been exposed to the enriched environment.

Nassim Taleb and Nouriel Roubini on CNBC

http://www.cnbc.com/id/15840232?video=1027496846

Video from CNBC. Hard to glean anything particularly new from this. It is maddening to watch the CNBC pundits try and talk over Roubini and Taleb and then demand investment advice from them. What a bunch of whiny, idiotic children.

Government Intervention, Not the Lehman Collapse, Caused the Financial Crisis

http://online.wsj.com/art…MDExNDAzWj.html

Ignoring Taylor’s own suggestions as to solutions, it’s refreshing to see his piece published in the WSJ — an article that rightly points the finger at the root cause of our current debacle, most notably, loose monetary policy.

Monetary excesses were the main cause of the boom. The Fed held its target interest rate, especially in 2003-2005, well below known monetary guidelines that say what good policy should be based on historical experience. Keeping interest rates on the track that worked well in the past two decades, rather than keeping rates so low, would have prevented the boom and the bust. Researchers at the Organization for Economic Cooperation and Development have provided corroborating evidence from other countries: The greater the degree of monetary excess in a country, the larger was the housing boom.

Study: Do Women Like Men With A Stubble?

http://wiseperception.com/node/148

Makes sense to me — if not for the pronounced lower jaw, for the manly (read: non-juvenile) look a bit of stubble provides. Oddly enough, this thought had crossed my mind in a comment on Patri’s LJ almost right before I found this article. And of course, I’ve blogged on shaving before.

Women participating in the research rated men with stubble as tough, mature, aggressive, dominant and masculine – and as the best romantic partners, either for a fling or a long-term relationships. The findings of the experiment, carried out on British women aged 18 to 44, could explain the appeal of actors such as George Clooney and Brad Pitt who cultivate their unshaven look. The explanation for the preference is not clear, but experts in human evolution say that that facial hair may be a signal of aggression because it boosts the apparent size of the lower jaw, emphasising the teeth as weapons. Psychologists at Northumbria University who carried out the new study believe that stubbly men may offer women the best worlds – not too strongly masculine, but mature and with the potential to grow a full beard.

Interview with Leonard Mlodinow (part 3)

http://www.blog.sethrober…lodinow-part-3/

There are 15 parts and counting to this interview with writer, scientist Leonard Mlodinow (they are all about a page long). He’s wrote The Drunkard’s Walk, which I’ve ordered from Amazon — it sounds similar to Taleb’s The Black Swan, which was fantastic and crystallized some thoughts that had been racing around in the ether of my brain. Saving this one down as I particularly liked Mlodinow’s commentary on writing here.

For the rest, here’s the current directory:

  1. part 1
  2. part 2
  3. part 3
  4. part 4
  5. part 5
  6. part 6
  7. part 7
  8. part 8
  9. part 9
  10. part 10
  11. part 11
  12. part 12
  13. part 13
  14. part 14
  15. part 15

Also mentioned in part 15 is a documentary about Cal-Tech basketball that sounds intriguing — it is called “Quantum Hoops.” Might be worth renting.

MLODINOW I think that in a way . . . I guess there’s two components to being able to write. One is your natural proclivity, I try not to say talent, but it’s your voice or the way you express yourself. And the other is the craft part of it that you learn by doing. I think I always had a good sense of humor and maybe a way to say things colorfully or think in terms of dramatic or powerful situations and I guess that’s the first part and served well. The other part is the things you learn as you go, such as what puts people to sleep or how to abandon what you think are good ideas but really aren’t. That’s a hard lesson to learn because it’s difficult to let go of things you might like and to realize that it just doesn’t belong or goes on too far or the idea that sometimes it’s hard to recognize things that may be good but just don’t belong there–that are tangents and they take away the dramatic thrust of where you’re going and they really have to be cut even though they’re good and you like them. You know, lessons like that, lessons about pacing–you learn by doing, by failing. You learn more about pacing, all sorts of technical aspects of writing, whether its fiction or nonfiction or TV or books; there are certain principles that you just learn by repeatedly doing and doing wrong and realizing, absorbing what went wrong and fixing it and you grow that way. In book writing you’re able to do that a lot with rough drafts so a lot of your mistakes don’t end up getting published–you know? TV writing can be so fast that often you don’t see the problems with the script until you actually watch it on the air and then you go, ‘Next time I think I won’t have that guy climbing the stairs for four minutes in the middle of the scene; I think five seconds is enough to get the idea across.’

ROBERTS Yes, that kind of brings us back to the very beginning. I feel like somehow the times have changed and people are smarter. Now you can make a living from what you’re doing. You’re writing this very entertaining intellectual history; finally there’s a market for it. Finally people are smart enough to be at your level so that you can write a book that you respect but you can get a wide enough audience.

MLODINOW Are you saying that in the 50s that couldn’t have been done? I don’t know.

ROBERTS Well, nobody did it; let’s put it that way.

MLODINOW No, nobody did it. I don’t know why.

ROBERTS As I said before we started recording, you’re the first person to ever do this. Will you be the last? I don’t know but you’re the first. You’re the first person to write intellectual histories that actually are popular and that people want to read, that they’re not forced to read by their teachers. It’s not just a tiny group of people reading them. Professors of course write them but they’re not well written and it’s just their job to write them; they get a salary from the government to write those books. You’re not getting any salary. You’re an entrepreneur and it’s just so different. Your books have to be popular or your job goes away. It’s just a different level of competence; your books are just infinitely more accessible, infinitely better than a professor would normally write. A professor is subsidized and that’s what is basically comes down to. Practically everybody who writes about science is subsidized but you’re not.

There’s No Biz Like No Biz at Twitter! (And Will Google Swoop In Before It All Comes Crashing Down?)

http://kara.allthingsd.co…-crashing-down/

Another dotcom valuation – is Twitter worth $250mm? More?

Since BoomTown constantly called the $15 billion valuation of Facebook “insane” when Microsoft forked over $240 million in 2007 and gave Slide’s Max Levchin a very hard time when his widget company got a $550 million valuation a year ago, it’s only fair that I say something equally appropriate about Twitter. The hot microblogging service just got its very own $250 million valuation, all without a dime of revenue in sight. (I know, Bijan, it’s coming, it’s coming!)

The No-Stats All-Star

http://www.nytimes.com/20…&pagewanted=all

Interesting article on Shane Battier, Houston Rockets b-ball player whose conventional stats are totally unimpressive but unconventionally, he makes all his teams much better. Interesting read from many angles.

The 3-point shot from the corner is the single most efficient shot in the N.B.A. One way the Rockets can tell if their opponents have taken to analyzing basketball in similar ways as they do is their attitude to the corner 3: the smart teams take a lot of them and seek to prevent their opponents from taking them. In basketball there is only so much you can plan, however, especially at a street-ball moment like this. As it happened, Houston’s Rafer Alston was among the most legendary street-ball players of all time — known as Skip 2 My Lou, a nickname he received after a single spectacular move at Rucker Park, in Harlem. “Shane wouldn’t last in street ball because in street ball no one wants to see” his game, Alston told me earlier. “You better give us something to ooh and ahh about. No one cares about someone who took a charge.” The Rockets’ offense had broken down, and there was no usual place for Alston, still back near the half-court line, to go with the ball. The Lakers’ defense had also broken down; no player was where he was meant to be. The only person exactly where he should have been — wide open, standing at the most efficient spot on the floor from which to shoot — was Shane Battier. When Daryl Morey spoke of basketball intelligence, a phrase slipped out: “the I.Q. of where to be.” Fitting in on a basketball court, in the way Battier fits in, requires the I.Q. of where to be. Bang: Alston hit Battier with a long pass. Bang: Battier shot the 3, guiltlessly. Nothing but net.

China Feasts on Miners as “Bank of Last Resort”

http://www.bloomberg.com/…VMA&refer=home#

What’s China to do with their $2 trillion in reserves (world’s largest)? Spend it, of course. And what better place to spend that money than on real assets?

An interesting, if not predictable (to some), development.

Wuhan Iron & Steel Group and Jiangsu Shagang Group Co., China’s third- and fifth-largest steelmakers, are shopping for iron ore mining stakes in Australia and Brazil, executives said in interviews.

“We are evaluating and selecting” candidates in Australia and Brazil, said Shen Wenrong, Jiangsu-based Shagang’s chairman. “Going overseas is the government policy, so I believe we will get financing from Chinese banks.” Wuhan spokesman Bai Fang said his company is “looking for opportunities” amid lower acquisition costs for iron ore assets in Australia and “won’t rule out other countries.”

The world’s top metal user, China has agreed to acquire $22 billion worth of commodity assets this year after a 70 percent drop in metals and oil since July ended a six-year boom in raw materials. With U.S. and Australian banks still hesitant to lend, Rio Tinto Group and OZ Minerals Ltd., laboring under combined debt of $40 billion, agreed this month to sell stakes to Aluminum Corp. of China and China Minmetals Corp., respectively.

“China has turned out to be the bank of last resort,” said Glyn Lawcock, head of resources research at UBS AG in Sydney. “China is a net importer of copper, bauxite, alumina, nickel, zircon, uranium. China is looking for ways to secure supply of these raw materials.”

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