Stimulus Package

Well, here is a breakdown of how the stimulus will be used. $400 million for global warming research? Seriously?

-$1 billion for Amtrak
-$2 billion for child-care subsidies
-$50 million for the National Endowment for the Arts
-$400 million for global-warming research
-$2.4 billion for carbon-capture demonstration projects
-$650 million for digital TV conversion coupons
-$8 billion for renewable energy funding
-$6 billion for mass transit
-$600 million for the federal government to buy new cars
-$7 billion for modernizing federal buildings and facilities (including $150million for the Smithsonian)
-$252 billion is for income-transfer payments ($81 billion for Medicaid, $36 billion for expanded unemployment benefits, $20 billion for food stamps, and $83 billion for the earned income credit for people who don’t pay income tax)
-$66 billion for education

Source

Auto Industry on a New Path

Obama has made it clear that he is going to push issues he talked about during his campaign. Less than one week into the presidency he has already made it clear that auto emissions standards are going to rise. Instead of increasing the national standards which is very hard politically he is going to give the states federal power to regulate their own emission standards. This is actually a really good idea because it will essentially bring all the states up to a higher level because the production is done in specific factories. They are going to build the parts in mass which is more price efficient for the company. This means that most the new cars are going to have higher standards or at least until the old inventory is used. It will be interesting to see what states take the initiative on this. I'm sure Michigan won't be first in line!

Job Losses

And these are just the ones we know about...

Inside the Madoff Portfolio.

According to the venerable Yahoo!Finance, Eaton Vance Senior Income Trust (EVF) was a portfolio holding of top (?) portfolio manager Bernie Madoff:


Disclosure: I join Mr. Madoff in holding EVF.

"You thought our hedge funds were bad...just wait!"

Famed quant shop AQR Capital has taken it upon themselves to convert a few poorly performing investment strategies into mutual funds in addition to their first offerings in their brand new family of mutual funds, AQR Funds.

Take a look.

Obama's Stimulus Package

Here' s an analogy that should have been on the SAT

PIMCO: The authority on bonds = Greg Mankiw: The Authority on Economics

Take a look!

October Performace

From a recent academic paper on the performance of the DJIA in October 2008:

"We selected the six largest daily percentage changes in the Dow Jones Industrial Average during October, and asked the question of how frequent these changes occur assuming that, as is commonly done in finance models, these events are normally distributed. The results are truly astonishing. There were two daily changes of more than 10% during the month. With a standard deviation of daily changes of 1.032% (computed over the period 1971-2008) movements of such a magnitude can occur only once every 73 to 603 trillion billion years. Since our universe, according to most physicists, exists a mere 20 billion years we, finance theorists, would have had to wait for another trillion universes before one such change could be observed. Yet it happened twice during the same month. A truly miraculous event. The other four changes during the same month of October have a somewhat higher frequency, but surely we did not expect these to happen in our lifetimes."


(1) Daily returns from 01/01/1971 – to 31/10/2008 (Source Datastream)

(2) The mean of the distribution is set to zero and the standard deviation computed over the whole sample (St. Dev. = 1.032%).

(3) 10 21 = “Sextillion” in Western (Arabic) Numeral; “Trillion Billion” in US; modern British & Australian

Paul De Grauwe, Leonardo Iania, and Pablo Rovira Kaltwasser

ISM Number Worse than Expected

On Friday, the Institute for Supply Management was recorded at 32.4 its lowest level in over 20 years. Right now this number symbolizes the dismal state of the current economy, however it may represent the worse of what we have been through. This seems to be the sentiment on the street because economists and traders are starting to become much more optimistic about the economy in late 2009. You cannot expect growth to be back at pre-depression levels, but positive GDP growth will be welcome whenever it does come. One thing that is for sure is that Wall Street will bounce back before Main Street. The last few trading days may spur some short term optimism in the market, but I don't believe it will last. There is still some major concerns that need to be addressed before we will see a recovery in the United States.

Because we live in a truly global economy it is important to consider that the other countries of the world are also having economic problems. The manufacturing numbers in those countries have also been decreasing fast and for them manufacturing is a much more important factor in the GDP of their country. Lots of demand for U.S. goods and services comes from overseas and until it comes back the U.S. will not see significant and consistent economic recovery.

Why People are Gullible

Here is a great article that is written by a psychology professor about the Madoff scandal. He himself was a victim so he goes through his thoughts when investing in a Madoff fund. The article chronicles the history of financial scams, and it is interesting to look back at the schemes now and think how idiotic they seem. You tell yourself you would never fall for something like that but certain social aspects hide the truth behind these schemes.

Great Article