Expansionary Policies

Yesterday, the Unknown Family was set to go to a nearby city for an overnight trip to check out a couple of hospitals (part of the Unknown Son's treatment plan). We were getting ready to leave in the morning, and then the fun started.

Unknown Wife's experienced some leaking. We were somewhat concerned, but not much, because the the new baby wasn't due for another three weeks. We called her OB/GYN, and he told us not to bother about coming to his office - just go straight to the hospital. So, it was off to the neighbor's with the Unknown Son, off to school with the Unknown Daughter, and off to the hospital with us.

Halfway there, her water broke. We arrived at the hospital, got checked in, and then proceeded to wait. It took quite a while, because, while her water had broken, the baby was in no hurry to move to his new digs. To make a long story short, 16 hours later (at 12:20 A.M this morning), a new member of the Unknown Family made his appearance. After settling them in, I drove home to catch a few hours of sleep (I got stopped for speeding along the way, but got off with a warning when I showed the officer pictures of the new guy).

I took the Unknown Son and Daughter (along with the Unknown Mother-In-Law, who's visiting for a few days to help out) in to the hospital to see the new little guy - both he and Mom are doing fine.

Now for the dilemma - if I refer to the older brother as the Unknown Son, what do I call the new guy? any suggestions are welcome.

By the way, he weighed 6 lbs 14 ounces, and was 19 1/2 inches long.

Happy St. Paddy's Day

It's been a pretty busy week, what with the Unknown Son's medical issues, teaching CFA classes, research, and the rest of the big ball-o-crazy we call life. Regular blogging should resume presently. But in the meantime, here's a Muppets Classic (my kids love them -we've already finished the first season on DVD, and are working on the second).

Forecast For Blogging - Light

It always seems strange to see someone post that they won't be blogging for a couple of days - it's like saying that your readers need your regular spewage so much that they'll have troubles without their regular fix. I have no such illusions.

Nevertheless, some weeks just need to be mentioned. The last cycle of the Unknown Son's chemo went fairly well – by the end of the week, they’d figured out the right mix of drugs to knock down the nausea, and he was doing pretty well. He had minimal nausea or other issues in the day or two later.

This time, it’s a different story. First off, the cocktail he’s on this time had to be infused over a 7-8 hour time frame (instead of the 4 hour infusion time last cycle), so it involved us getting there by 9 and not leaving until about 5 o'clock. Add in the 1 hour commute each way, and it made for a very long day. In addition, this time around, the chemo cycle only ran over three 3 days of infusion, so we did it on Tuesday, Wednesday and Thursday of last week. Come Thursday, we were thinking "This is a snap. No problem."

Advice to self - don't say or think that. Just don't - it tempts fate.

Then the fun started.

Friday morning, we had to go bring the Unknown Son back to the clinic for repeated nausea and vomiting. He got IV fluids and some anti-nausea meds, and we were out by 2:00. Then we had to go to the local Emergency Room (it's 10 minutes away versus an hour, so it made sense) Saturday night at 9 for a repeat performance. Sunday was fairly uneventful, with a little bit of nausea in the early afternoon. He had one or two more episodes later that afternoon, but his new medication Marinol , which is a synthetic form of the active ingredient of marijuana) seemed to work. After taking it, he slept for a while, and woke up quite hungry (in other words, he got stoned and ended up with the munchies). A warm bath, and another dose before bed, and he was out like a light.

At 4:00 this morning, we were back to the vomiting. So, it’s off to the clinic once more (the Unknown Wife is there now). With luck, they can get a handle on this – he’s lost about 4 pounds this week, and unlike his dad, he can’t spare the weight. He'll spend the night there, and Unknown Mom will stay with him (unfortunately, I have a commitment I can't get out of tonight). If he requires a second night, I'll relieve her after my night class tomorrow night.

Luckily, the Unknown Mother-in-Law (who is a saint, by the way) can come over to stay and help out with the Unknown Daughter.

So, blogging might be light for the next couple of days.

This Is Pretty Much True For Most First Drafts

This is true for my first drafts, and even more so for most grad students.

Sad, but true.

What's The Probability of a Big Market Decline?

Soorry ab out the short post with nothing more than a link in it. I thought I'd saved it as a draft, but goofed (it's a chemo week, and people shouldn;t blog when tired). In any event, check out this piece by Eric Zitzewitz who's guest posting at Freakonomics. He's one of the sharpest guys around on prediction markets (he's also done some nice mutual fund research).

In any event, he usues the intuition developed in Breeden and Litzenberger (1978), who demonstrate how you can create "Arrow-Debreu" securities by comparing the prices of options at adjacent strike prices. For the unitiated (i.e. less nerdy) among you, an AD securitiy pays $1 if a certain event occurrs and zero otherwise. It's basically what the betting contracts at Intrade are. The nice thing about traded AD securities is that the logical price for one is approximately the marginalk trader's probability of the even occurring. So, the prices tell you what "the market's" estimate is of the likelihood of the event).

Zitzewitz uses this intuition to calculate the probability of a large market drop (like the S&P going to 2500 by the ned of next year).


Definitely a cool piece. Read the whole thing here.

The elimination of the consequences of bad behaviour continues

From today's Wall Street Journal:

Citigroup Inc. announced Tuesday a new program aimed at addressing the latest challenge facing the mortgage industry: unemployed homeowners.

Under the program, Citigroup will temporarily lower mortgage payments to an average of $500 a month for certain borrowers who have recently lost their jobs and are at least 60 days behind on their mortgage payments. Borrowers will be allowed to make the lower payments for three months. Citigroup will waive interest and penalties during this period.

n January, the New York bank bucked the rest of the industry and endorsed legislation that would allow bankruptcy-court judges to modify the terms of troubled mortgages. Citigroup executives have said that move, which could take a toll on the company's bottom line, was designed to win favor in Washington.

...Mr. Das said the federal government "had no role at all" in the company's latest loan-modification effort. The new program "was created by us, developed by us and is now being implemented by us," he said. "There was no pressure at all."

It sometimes appears like we're moving towards a society where the costs associated with taking risks are slowly being eliminated. That means that eventually, so will be benefits.

And somehow I doubt there was "no pressure at all" That could be my inner Conspiracy Theorist (he lives in my head next to the little Game Theorist) talking, but the timing seems (as Artie Johnson would say, "Verrrrrryy Innntereshting"

Ironically, the article was in the "politics" section.

This Week's Another Big Ball-O-Crazy

Posting will be light this week, since life is far over the line into CrazyTown:

• It's a chemo week for the Unknown Son, so every day I'm either teaching or (on my non-teaching days) taking him to chemo.
  
• I've got a conference deadline tomorrow (for the Southern Finance Association meeting)
• In addition, I'm teaching two nights this week in a professional program.
• Somehow in the midst of all this, I have to write an exam for my case course.
  

Finally, in case I forgot, when I wake up tomorrow, I'll probably have to shovel upwards of a foot of snow before I take Unknown Son to the clinic for his chemo?

Ah well - I guess I'll have to plan on sleeping Friday night. By then it'll all be over.

What You Need For A Job In Investment Management

When this commercial came out, I thought it was great. The fact that it starred the king of the B-Movies, Bruce Campbell (a.k.a. "The Chin") was just icing on the cake. But it's the sort of conundrum that's faced by almost every undergrad trying to get a job in the Investment Banking or Investment Management field:

"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....

... The point is, if you've never had any of it -- ever, people just seem to know.

So, if you don't have it, don't try to fake it, because you will get embarrassed. So the trick is to get things on your resume that demonstrate that even if you don't have "real" experience, you at least have the personal characteristics (and some reasonably related background that make you likely to get it.

Of course, the only reason I really did this post is that I wanted to put a video of Campbell up on the blog.

If Dogbert Was a Bailed Out CEO

Some of the political theater surrounding the auto bailouts was pretty ridiculous. In particular, the kerfuffle about them taking corporate jets vs. driving vs. flying coach was a bit much.

So I thought this Dilbert cartoon was pretty good:

Diversification Across Risk Premiums

Things have been crazy lately - we have two speakers this week at Unknown University's College of Business, and I'm involved in both visits. In addition, I'm getting ready for my CFA prep class and trying to get a paper out for a conference. So, blogging has been light this week (and will probably continue to be spotty for the rest of the week).

But in the meantime, here's an interesting paper to chew on. We were recently talking about different risk premia (size, market/book, momentum, etc...) in class. This paper, "Portfolio of Risk Premia: A New Approach to Diversification" by Remy Brian, Frank Nielsen, and Dan Stefek paper that takes the idea of risk premia combines it with a equally-weighted portfolio weighting scheme across assets with exposures to the various premiums.

Traditional approaches of structuring policy portfolios for strategic asset allocation have not provided the full potential of diversification. Portfolios based upon a 60/40 allocation between equities and bonds remain volatile and dominated by equity risk. In this paper, we introduce a different approach to portfolio diversification. This approach looks at structuring portfolios using available risk premia within the traditional asset classes or from systematic trading strategies rather than focusing on classic betas such as equities and bonds. We start by reviewing the various ways of dissecting asset classes into their underlying systematic drivers or risk premia and analyze the historical risk and return patterns for a number of risk premia across asset classes. In a second stage, we illustrate empirically that correlations between risk premia have been low, offering significant diversification potential. We then confirm the benefits of diversification with a simple asset allocation case study by comparing a typical 60/40 equity/fixed income allocation with an equal weighted allocation across eleven style and strategy risk premia. From 1995 to 2008, this simple combination had returns similar to the traditional allocation but with 65% less volatility.

You can read the whole thing on SSRN here