The CFTC has reacted to Tradesports‘ futures-like contracts that many U.S. residents have been trading without CFTC regulation.
It is surprising how closely the contracts that they objected to coincide with contracts traded under CFTC regulation – they apparently have prohibited Tradesports from offering to U.S. residents contracts on the results of the next Fed meeting (which Hedgestreet trades under CFTC regulation; Tradesports stopped offering these in May, possibly due to negotiations with the CFTC) but as far as I can tell Tradesports is still able to offer contracts on where the Fed Funds rate will be at the end of the year.
I am also surprised that the CFTC classified the contracts as futures options rather than futures. They do have something resembling as strike price, but otherwise resemble a futures contract more than they resemble an option.
Book Review: Unconventional Success : A Fundamental Approach to Personal Investment by David F. Swensen
This book provides some good advice on how an amateur investor can avoid sub-par results with a modest amount of work. It starts by describing why good asset allocation rules should be the primary concern of the typical person.
I found this quote especially wise: “While hot stocks and brilliant timing make wonderful cocktail party chatter, the conversation-stopping policy portfolio proves far more important to investment success.” Fortunately for those of us who make a living exploiting the mispricing of fad-chasing investors, the most valuable points of this book aren’t in the kind of sound bite that will make them popular at cocktail parties.
But even if you choose investment ideas for cocktail party conversation rather than for building wealth, you should be able to find some value in his explanations of how to avoid being ripped off by fund salesmen and why ETFs are better than most mutual funds.
His attacks on the mutual fund industry are filled with redundant vitriol that may cause some readers to quit in the middle. If you do so, don’t miss table 11.3, which gives an excellent list of ETFs that most investors should use. I was surprised at how much I learned about the differences between good and bad ETFs from this book.
His arguments against investing in foreign bond funds are weak. I suspect he overestimates the degree to which foreign equities diversify exposure to currency risks.
He advises investing more in U.S. equities than in equities of the rest of the world combined, even though his reasoning implies more diversification would be better. But I’ve been slow enough to diversify my own investments this way that I guess I can’t fault him too severely.
He has a plausible claim that not-for-profit organizations that provide investment vehicles on average treat customers more fairly than for-profit funds do, he goes overboard when he claims not-for-profits have no conflict of interest. The desires for job security and large salaries create incentives that would cause many investors to be fleeced if they switched to not-for-profits without becoming more vigilant than they have been.
His faith in the U.S. government is even more naive. He says “U.S. Treasury Inflation-Protected Securities, which provide ironclad assurance against inflation-induced asset erosion”, “Treasury … bondholders face no risk of default”, and “The interests of Treasury bond investors and the U.S. government prove to be better aligned than the interests of corporate bond investors and corporate issuers. The government sees little reason to disfavor bondholders.” But a close look at the CPI shows that indexing to it provides very imperfect inflation protection (e.g. its focus on rents hides the effects of rising home prices), and the current reckless spending policies combined with large foreign holdings of U.S. bonds can hardly avoid creating a motive for future politicians to inflate wildly or default.
More evidence that people strongly overestimate the need for government.
The latest issue of Reason magazine has a nice report (based on this report in Motoring) that Ukraine fired all of the country’s traffic cops, and preliminary evidence indicates that the predictions of increased traffic accidents were false.
The reports I’d been reading about this movie led me to expect it would be a must-see movie. I was somewhat disappointed. It was probably worth seeing. It’s more intelligent but more violent than a Star Trek movie. And the rationalizations for the violence aren’t as contrived as in a typical violent movie. But being more intelligent than most big-budget movies is hardly enough to make a movie great. Maybe this is close to the best that we can expect from a movie aimed at a large audience, but if so that just makes me impatient for the day when animation becomes sufficiently realistic and affordable that the artists who produce science fiction movies can afford to target smaller (more sophisticated) markets and can afford as much variety and experimentation as the book market currently can.
The rationalizations that I’m noticing from people who want to deny the existence of a housing bubble are becoming more obviously contrived.
Last spring, the strangest one I noticed was this Tyler Cowen post, which notes the unusual rent-buy ratios, then ignores that anomaly and devotes the rest of the post to questioning a weaker argument for the housing bubble theory.
This month I noticed someone on a private mailing list who had enough sense to realize that current housing prices probably depend on a continuation of unusually low and stable long-term interest rates expressed confidence that the “psychological consensus against inflation” would make that likely. If such a consensus existed, I would have expected to see people expressing concern that the Fed’s policy being too inflationary, when in fact I see people jumping at any excuse (e.g. a hurricane) to advocate a more inflationary policy. Plus I see politicians racing to expand the federal debt to levels that will give them massive incentives to inflate or default when the baby boomers retire.
Now Chris Hibbert comes up with some stranger rationalizations:
The worst historical cases that I know of were times when housing prices dropped 10 or 20 percent.
I thought he read Marginal Revolution regularly, but that comment suggests he is unaware of this description of Shiller’s apparently more accurate housing price history which includes what looks like a 50 percent drop in U.S. housing prices. But that deals with a national average, which gives you the kind of diversification you might get with a mutual fund. Chris’s real estate investments sound less diverse – is that safer?
Continue Reading
I was somewhat disappointed by the latest Accelerating Change Conference, which might have been great for people who have never been to that kind of conference before, but didn’t manage enough novelty to be terribly valuable to those who attended the first one. Here are a few disorganized tidbits I got from it.
Bruno Olshausen described our understanding of the neuron as pre-newtonian, and said a neuron might be as complex as a pentium.
Joichi Ito convinced me that Wikipedia has a wider range of uses than my stereotype of it as a dictionary/encyclopedia suggested. For example, its entry on Katrina seems to be a better summary of the news than what I can get via the traditional news media.
Cory Ondrejka pointed out the negative correlation between the availability of violent video games and some broad measure of U.S. crime. He hinted this might say something about causation, but reminded people of the appropriate skepticism by noting the correlation between the decline in pirates and global warming.
Someone reported that Second Life is growing at an impressive pace. I’ve tried it a little over a somewhat flaky wireless connection and wasn’t too excited; I’ll try to get my iBook connected to my dsl line and see if a more reliable connection makes it nicer.
Tom Malone talked about how declining communications costs first enabled the creation of large companies with centralized hierarchies and are now decentralizing companies. His view of Ebay was interesting – he pointed out that it could be considered a retailer with one of the largest number of employees, except that it has outsourced most of its employees (i.e. the people who make a living selling through Ebay). He also mentioned that Intel has some internal markets for resources such as manufacturing capacity.
Daniel Amen criticized modern psychiatry for failing to look at the brain for signs of physical damage. He provided strong anecdotal evidence that the brain imaging services he sell can sometimes tell people how to fix mental problems that standard psychiatry can’t diagnose, but left plenty of doubt as to whether his successes are frequent enough to justify his fees.
T. Colin Campbell described some evidence that eating animal protein is unhealthy. He didn’t convince me that he was a very reliable source of information, but his evidence against casein (a milk protein) sounded fairly strong.
One odd comment from Robin Raskin (amidst an annoying amount of thoughtless sensationalism) was that kids don’t use email anymore. They send about two emails per day [i.e. they’ve switch to IM]. The idea that sending two emails per day amounts to abandoning email makes me wonder to what extent I’m out of touch with modern communication habits.
An amusing joke, attributed to Eric Drexler:
Q: Why did Douglas Hofstadter cross the road?
A: To make this joke possible.
Book Review: The Singularity Is Near : When Humans Transcend Biology by Ray Kurzweil
Kurzweil does a good job of arguing that extrapolating trends such as Moore’s Law works better than most alternative forecasting methods, and he does a good job of describing the implications of those trends. But he is a bit long-winded, and tries to hedge his methodology by pointing to specific research results which he seems to think buttress his conclusions. He neither convinces me that he is good at distinguishing hype from value when analyzing current projects, nor that doing so would help with the longer-term forecasting that constitutes the important aspect of the book.
Given the title, I was slightly surprised that he predicts that AIs will become powerful slightly more gradually than I recall him suggesting previously (which is a good deal more gradual than most Singulitarians). He offsets this by predicting more dramatic changes in the 22nd century than I imagined could be extrapolated from existing trends.
His discussion of the practical importance of reversible computing is clearer than anything else I’ve read on this subject.
When he gets specific, large parts of what he says seem almost right, but there are quite a few details that are misleading enough that I want to quibble with them.
For instance (on page 244, talking about the world circa 2030): “The bulk of the additional energy needed is likely to come from new nanoscale solar, wind, and geothermal technologies.” Yet he says little to justify this, and most of what I know suggests that wind and geothermal have little hope of satisfying more than 1 or 2 percent of new energy demand.
His reference on page 55 to “the devastating effect that illegal file sharing has had on the music-recording industry” seems to say something undesirable about his perspective.
His comments on economists thoughts about deflation are confused and irrelevant.
On page 92 he says “Is the problem that we are not running the evolutionary algorithms long enough? … This won’t work, however, because conventional genetic algorithms reach an asymptote in their level of performance, so running them for a longer period of time won’t help.” If “conventional” excludes genetic programming, then maybe his claim is plausible. But genetic programming originator John Koza claims his results keep improving when he uses more computing power.
His description of nanotech progress seems naive. (page 228) “Drexler’s dissertation … laid out the foundation and provided the road map still being followed today.” (page 234): “each aspect of Drexler’s conceptual designs has been validated”. I’ve been following this area pretty carefully, and I’m aware of some computer simulations which do a tiny fraction of what is needed, but if any lab research is being done that could be considered to follow Drexler’s road map, it’s a well kept secret. Kurzweil then offsets his lack of documentation for those claims by going overboard about documenting his accurate claim that “no serious flaw in Drexler’s nanoassembler concept has been described”.
Kurzweil argues that self-replicating nanobots will sometimes be desirable. I find this poorly thought out. His reasons for wanting them could be satisfied by nanobots that replicate under the control of a responsible AI.
I’m bothered by his complacent attitude toward the risks of AI. He sometimes hints that he is concerned, but his suggestions for dealing with the risks don’t indicate that he has given much thought to the subject. He has a footnote that mentions Yudkowsky’s Guidelines on Friendly AI. The context could lead readers to think they are comparable to the Foresight Guidelines on Molecular Nanotechnology. Alas, Yudkowsky’s guidelines depend on concepts which are hard enough to understand that few researchers are likely to comprehend them, and the few who have tried disagree about their importance.
Kurzweil’s thoughts on the risks that the simulation we may live in will be turned off are somewhat interesting, but less thoughtful than Robin Hanson’s essay on How To Live In A Simulation.
A couple of nice quotes from the book:
(page 210): “It’s mostly in your genes” is only true if you take the usual passive attitude toward health and aging.
(page 301): Sex has largely been separated from its biological function. … So why don’t we provide the same for … another activity that also provides both social intimacy and sensual pleasure – namely, eating?
Why did many people decide not to leave New Orleans in advance of Katrina? Part of the problem may have been that they relied on storytellers rather than weather experts.
NBC’s Brian Williams reports on his blog NBC’s reaction to this weather alert:
URGENT – WEATHER MESSAGE
NATIONAL WEATHER SERVICE NEW ORLEANS LA
1011 AM CDT SUN AUG 28 2005
…DEVASTATING DAMAGE EXPECTED…
HURRICANE KATRINA…A MOST POWERFUL HURRICANE WITH UNPRECEDENTED
STRENGTH…RIVALING THE INTENSITY OF HURRICANE CAMILLE OF 1969.
MOST OF THE AREA WILL BE UNINHABITABLE FOR WEEKS…PERHAPS LONGER.
AT LEAST HALF OF WELL CONSTRUCTED HOMES WILL HAVE ROOF AND WALL
FAILURE. ALL GABLED ROOFS WILL FAIL…ALL WOOD FRAMED LOW RISING
APARTMENT BUILDINGS WILL BE DESTROYED. … WATER SHORTAGES WILL MAKE
HUMAN SUFFERING INCREDIBLE BY MODERN STANDARDS.
Williams says “The wording and contents were so incendiary that our folks were concerned that it wasn’t real”, and implies that he and others at NBC translated this into something less scary for their viewers.
My most memorable experience with hurricane forecasts was with hurricane Gloria in 1985 when I was in Block Island (off Rhode Island). I recall a TV weather forecast that winds might reach 135 to 175 mph, and marine weather radio forecasts of 50 to 70 knot sustained winds with gusts to 90 knots (i.e. less than 105 mph). The marine radio forecasts seem to be more direct relays of what the weather service puts out, and it was fairly simple for me to determine that the TV forecast was bogus (the marine radio forecasts proved pretty accurate).
So it’s easy to imagine that people are aware that TV forecasts have a habit of overstating the threat from storms, and thought they could infer expert forecasts from TV forecasts by assuming a simple pattern of exaggeration, when it may be that the storytellers have a more complex model of how viewers’ behavior should be manipulated by biasing their reports. Do people actually rely on TV reports rather than more direct and reliable sources of expert opinion when accurate forecasts are important? If so, is it because they use weather forecasts mainly as entertainment or a catalyst for smalltalk at parties, and don’t want to be aware of the flaws?
And of course there was the problem of key government leaders failing to believe the expert forecast: (from The Agitator) [then] FEMA Director Brown:
Saturday and Sunday, we thought it was a typical hurricane
situation — not to say it wasn’t going to be bad, but that the
water would drain away fairly quickly. Then the levees broke and
(we had) this lawlessness. That almost stopped our
efforts…Katrina was much larger than we expected.
Brad Setser has a disturbing post about the risks that the hedge fund industry is taking, and which might cause a market crash. Puts are looking cheap these days, and I’m buying a modest amount of them just in case.
The reports in the news media of people shooting at rescuers have been puzzling, and it has been obvious that the storytellers didn’t know much about it. Now thanks to Andrew Sullivan, I’ve seen some reports from apparently informed people, especially this first hand account that includes repeated instances of government agents creating enough problems that reasonable people started treating those agents as threats. Also this report and this quote:
3:32 P.M. [Monday] Ben Morris, Slidell mayor: We are still hampered by some of the most stupid, idiotic regulations by FEMA. They have turned away generators, we’ve heard that they’ve gone around seizing equipment from our contractors. If they do so, they’d better be armed because I’ll be damned if I’m going to let them deprive our citizens.
Add to this Louisiana’s refusal to let the Red Cross into the disaster area, and it becomes understandable that residents have been treating some government agents in a less friendly fashion than Gaza settlers have been treating their government.
Preliminary evidence suggests that many local, state, and federal officials ought to lose their jobs over this, but we should be patient about judging individual people until more people who were on the scene are able to make detailed reports.
And let’s not forget the government employees that did something right. The weather service didn’t screw up. There are reports of National Guard and LA Fish and Wildlife employees doing good jobs.