this is genius

Credit Suisse are using illiquid assets to pay bonuses.

So if these things are really worth the paper they are written on, then the workers get paid off, otherwise, too bad. Very, cathartic.

Facts/Trends, US Current Account and Global Currency Imbalances

US Current Account:
Reagan Years : ca. 4+% of GDP
2000: 4% of GDP
2004: 5% of GDP
2008: 7% of GDP

US borrows short and lends long

It's debt position is made more sustainable because it is the world reserve currency.

a. Its foreign assets are in foreign currency while its liabilities are in US Dollars.
Thus, a 1% depreciation of the USD will improve its asset position by $50 billion dollars

b. Its assets yield more than it pays out on its liabilities


So, if these deficits are unsustainable, private actors should underweight US$ in their portfolios.

However, Dooley, Folkerts and Landau argue that the current situation is sustainable.

US deficit is funded by reinvestment of East Asian surpluses into US Treasuries.

Thus, despite ballooning budget deficit, there is a net reduction of stock in T-bills. This depresses yields by an estimated 1%.

China foreign exchange reserves: $1.9 trillion
Japan's foreign exchange reserves : $0.9 trillion
2008 US budget deficit : $454.8 billion (CBO)
Stock of treasuries held by public: $5 trillion (end 2007)
of which : stock held by foreign governments: http://www.treas.gov/tic/mfh.txt
of which: China $600 billion, Japan $500 billion
Total : $3 trillion
Net: $2 trillion in private hands.

this is the beautiful bit from dooley:
"there is no limit on the ability or willingness of the japanese authorities to create yen to stem a buying-in of their currency"
there is no cost or pain to them, especially since they are in a deflationary economy. if they manage inflate their economy, then it's monetary stimulus, at the same time, if they depreciate the yen, they have a net gain on their position

china might face that constraint. it can fund from its CA surplus.

so, equilibrium. textbook considerations imply diversifying away from us$. however, this threatens the us$ peg and their export oriented growth model, make them acquire gross reserves at a faster rate, which are against their interests.


next: what disrupts this equilibrium?


an old photo from someone

me dominating fussball table


jesse and michelle alert: a couple called jesse and michelle just hosted a partypoker tv tournament today. it was nice to see their ample chemistry.
if there was an oscar award for best first hour of a film, slumdog millionaire should win it.
lots of drum and bass and action.

not that the second half sucked. but i am trying to bridge a gap between those who say it's the best movie in the world and those who say it's severely overrated.

i really enjoyed it. and the photography was excellent, but most of all i liked the music. though i wondered where the music went for the second half of the show.
i spent this afternoon running through business cycles, all the various components (residential fixed investment, non-residential etc), filtering, detrending and then looking at the relative volatilities. i wasted a lot of time simply picking the correct datasets from the ample choice available.


singapore economy

thought i might dedicate some attention to the singapore economy, since i read a bloomberg report which either has strange numbers or is pretty scary

credit suisse estimates about 300,000 positions will be lost by the end of 2010, vs 30,000 jobs last year
on a labour force of 2.7 million, this appears exceedingly high, about 18%
so, if you think that means 18% unemployment, then you'll be shit scared, because that is great depression like statistics
anyway, as an estimate, that looks crazily high, because it errs by a factor of 10. it could even be a typo.

however, we have to keep in mind that these are gross separation statistics, and new positions are going to continue to be created, so the net inflow into unemployment is still going to be big, but much less than the number above.

two-thirds of the jobs lost are expected to be by foreigners and permanent residents, if it's meant to have any comfort. the job losses are still going to have a net impact. reduced tax receipts and consumer spending, although to a large extent we are not consumer-driven.

growth estimate by mti has been revised to -5%. not pretty, not a number you're used to seeing.

the upper forecast of the stimulus package weighs in at S$20 billion, which should come up at about 7.5% of GDP.

US budget deficit will come in at 1.2 trillion or 8.6% GDP.

Meanwhile, the STI ETF has announced an initial dividend of 5 cents per share, which is a yield of 2.73%


diamond & dybvig (1983) on bank runs, deposit insurance and liquidity. The key to why bank runs have real economic effects is that they prevent the full value of multi-period investment assets from being realized, and the forced liquidation of assets.

foreshadowing, or more accurately, inspiring the current government response, is this paragraph:

"through its discount window, the Fed can, as a lender of last resort, provide a service similar to deposit insurance. The Fed would buy bank assets (with money creation) tax revenues at T=1 for prices greater than the assets liquidating value."
gauti eggertson -

fiscal policy has its most significant effects in not what it actually does to the economy, but for altering the deflationary expectations of market participants. FDR's New Deal spending happened with considerable lag, however, the economic upturn coincided with his credible commitment to raising the rate of inflation in the economy, thus generating negative real interest rates, as well as changing expectations of permanent income, thus increasing current consumption.

question : this change was at that time "unanticipated," a complete regime change. to what extent is the upcoming fiscal stimulus already factored in by market participants?


great depression

from bernanke (1983), nonmonetary effects of the financial crisis in the propagation of the great depression

incidence of financial distress was very uneven.
aggregate corporate profits before tax was negative in 1931 and 1932
post-tax retained earnings were negative in 1930-1933

corporations with >%50million in assets maintained positive profits through the period, leaving the brunt to be dealt with by smaller corporations. so the easy liquidity found its way to larger blue chip corporations

many phrases if taken out of this paper sound exactly like the current situation. you can take out the Baa spread with treasuries and it looks the same in certain time periods.

HOWEVER, it differs in one crucial respect. there wasn't a sustained spike in spread in 2008, and the government in this case did not wait until 1933 to intervene in the financial system. no bank runs, no massive unemployment.

in other words, the mechanism of failure sounds pretty similar broadly, which is the failure of credit intermediation. however, the consequences seem different because so far bernanke has prepared a doctrine and it seems to be propping things up.

this, bernanke identifies as the key: he identifies the greatest single (perhaps only) contributing of the New Deal to amelioration of the crisis the restoration of the financial system of intermediation, because due to informational and enforcement problems, no one else proved up to the task of stepping into that role.

inversion of yield curve

"the stock market has correctly predicted 9 out of the last 5 recessions" - samuelson

inversion of the yield curve is generally seen to be indicator of a possible recession.

but this is precisely what interest rate tightening is meant to do right, cool off investment demand by making marginal projects unprofitable.

investment is in general 3x more volatile than output. an inversion of the yield curve is meant to cause savers to substitute away from long term treasuries to short term treasuries. this will cause the long term rate to rise, and make your marginal investment projects unprofitable.

however, in the open economy that we had, the inverted yield curve was able to last so long because of savings pouring in from everywhere else.

international financial crises


If you were ever interested in reading about 42 different financial crises since the 1970s and the efforts taken by policymakers to resolve them

portfolio balance, and how it ameliorates the affect of current account deficits

1. In each country, there is a bias towards home holdings of equities.
2. A transfer of wealth to another country, coupled with this home bias, means that equity prices rise faster in that foreign country, and equity prices in the domestic country are relatively lower.
3. This results in capital gain on your holdings of foreign equities, and an opposite effect on foreign holdings of domestic equities.
4. So this will ameliorate the decline in your net asset position.

Question: then what happens when you try to realize the gain?


Exactly the same thing can be done with home bias in bonds.
This time the mechanism is through domestic currency depreciation
1% balanced dollar depreciation : 0.4375% GDP, or $50 billion transfer to the United States

weekend of eating well

after my usual friday starvation due to lack of a lunch hour, i scarfed off some steak at alex's place for dinner

back home for breakfast, i had a philadelphia cream cheese bagel with salmon.

for dinner, i cooked some scallops with lemon, butter and herbs. why do scallops caramelize? anyway, yum yum, scallops are one of the best shellfish around.

oh in between i had spicy pork from greenwich market, because i miss chilli.


what's your ring to index finger ratio?

it's meant to predict aggression and how likely you are to part with your cash.


all hail naughty people!

had a great conversation tonight. i've never really looked at a younger replica of me run around. no lah, i'm exaggerating, but it's honestly really amusing to see that someone does think (by think i don't mean opinions) but i mean undergoes similar cognitive processes that you do. you know this by displaying a conclusion, and then independently verify that one reaches that conclusion using the same reasoning/intuition.

maybe that's why some people can feel like mentoring.

anyway, naughty people. one of the topics that came up was hwa chong and jennifer tan, discipline mistress. wah, must give it to her. very fierce. but also very naughty when young (if you talk to her about her life story). when i hear about some of her fearless exploits i am in deep admiration of her. to call up a fierce parent and then ask them questions about their decisions is kind of feckless, in a way, but it does show a great honesty/naivete. very good teacher. but i wonder how much that counts in life. maybe if she was not naughty she might have become very rich and successful. but, i think she knows how the naughty kids think.

i want to help naughty people, not because i'm very naughty myself. worked with them in jc and i really loved it. i think i used to be naughty for a period of time, and i do recall fondly what i was thinking, what i wanted to achieve or not achieve with my actions. i used to love infuriating people who were overly prescriptive. now when i see someone naughty i wish i had their fire... naughty people sometimes are selfish but i think most of the time it comes from overestimating their impact on the world, (misplaced?) social indignation.
i felt all this stuff before, and i feel it's a kind of power. it keeps you alert and stops you from stepping into traps people make for you, or from hurting you. and sometimes they do make an impact.

very interesting that people indeed do feel the same as i do. that dealing with people is tiring, but they learn to do so because of some external motivation, stimulus. then they read the books, they learn how to behave like other people, or to act their role well. then they go back, and they're tired, so they sleep. so if it's worth the investment for you, then do it.

dear god. thank you for teaching me how to write. it is the one big thing that keeps me from dying slowly, day by day. this is my MOST therapeutic activity, ever. also sorry that i don't use my talents to communicate properly with others. maybe i should. i'll get back to you when i've found it, just like now i've found my constituency.

rest of the day post

1. ironic moment of the day.

we both approached the waterstones counter, me looking nerdy with my foundations of international macro and a guy who looked cooler because he was carrying around books about gramsci. he subtly cut into me while the attendant left to help someone else, and i couldn't resist: "why bother reading about gramsci if you believe in cutting queues."

so please, don't be so quick to put down my international macro ok? and don't cut my queue.

2. the people who annoyed me by asking for my grades while barely knowing me have earned a reprieve. after being advised that yes, such a thing is socially acceptable and happens often, i thought it was nothing too bad. while they do tend to stick to one another because of their nationality (perfectly understandable), i am now indebted to them because they asked me nicely about how prepared i was for the upcoming mock (not at all, i said), and managed to tell me that class was cancelled this week because i had skipped lecture last term so i didn't know. so they saved me an hour. or maybe class was on and they insidiously told me it wasn't. no no, they are nice people. i will now consider forming an alliance with them because we 3 of us are an island of msc people floating in an mres world. we need to look out for ourselves.

3. more annoying talk about lousy teaching. i have new good teachers this term, mainly in the subjects i'm interested in, international macro and macro. but somehow maybe i have been deadened by the lse so i think that if you need to know something, you go find it out for yourself. then again good teachers do guide well. i was just feeling crabby. and also i've been in a kind of strike from lecturers and core modules which teach me absolute crap.

post number one today.

first of all, michaelmas TQARO results are out.

it was hard to make out much from the quantitative survey results since they display the usual mean clustering, so no i did not sweep all before me and was rated excellent/super poor by everyone. i was pretty much... competent.

qualitative feedback was more useful and also got me wondering who wrote some of the comments (and it's interesting to try to put a face on some). some of the positive/negative comments seem directly opposing to each other so to please one constituency might involve taking away from another. however, since being liked is probably not such a good thing i think the sensible thing to do is to pander to the needs of the neglected.

so this includes being more ruthless with what needs to be covered in class and probably turning down the let's make this interesting bit. less math. more of a class structure rather than mixing it up so that people will feel more comfortable. being better at culling discussions so i stop some people from taking over, and actively soliciting from quiet people. a core constituent is more concerned about passing this compulsory module so i should make this my number one priority going into lent.

and may i rock on for the lent tqaros.

interesting how my teaching style and evaluation pretty much reflected my inherent biases although i tried actively to fight against them.

i had an especially high score for audibility and clarity. maybe i am just a loud fuck after all, and i sound like ivan heng. heh


interesting anecdote of the day (paraphrased from memory)

"there are always some people who want to prove they're your greatest fan. they pose impossible questions to class teachers so they have an excuse to come to mine, they ask to look over your shoulder as you're doing research, as if it works that way. they come to office hours every week simply to talk about economics and ask you to write recommendations for grad school. i hardly even know them but they're my greatest fan. they want to know how i conduct my personal life. and then turning them down becomes a problem, they write emails everywhere, to admin, everywhere. please, i ask of you, deflect the stalkers for me."

turns out one of these guys is my friend sunny's student.

-i still don't know if the following is sarcasm or real advice-

"never teach too well. you get this kind of stuff. the best you should be is indifferent. not too good, not too bad, you get plenty of time. when you're in a seminar, the best piece of professional advice i can give to you is to shut up. the speaker either wants to get through the seminar peacefully or they really need your comments. if you speak up, you antagonize the former and attract the attention of the latter. you won't have time for anything after that. if you want to talk economics with someone, speak to them personally after. nothing is every accomplished in seminars. just show a lot of face time. i know an extremely smart guy who just shuts up but everyone loves him."


anw, news just in. november us trade deficit narrows significantly. bilateral trade deficit with china also narrows significantly. so, as per textbook thus far. mitigating effect on us growth (less withdrawals). i wonder if the us has been putting it's arm around china and making sure it gets ready by priming it's own domestic demand.

bernanke's speech: nothing new if you have been following. Q&A was fun though and the additional fuss about the bodyguards.
rocky balboa moment: running up the univ of greenwich/royal naval college steps, with the sun setting over canary wharf.

but, cold weather sucks for running. it takes forever to warm up.
back to school...

i had a horrible flight... headache most of the way, almost nothing to watch (i watched just one episode of 30 rock). i intended to go through hidalgo's notes on the plane, but the headache put paid to that, so i spent the flight listening to joss stone and lauryn hill and drifting in and out of sleep.

the usual jet lag is here... that means feeling hyper energetic one moment and then sleeping really deeply the next. but at least the demarcation is crisp so when i get down to stuff i don't feel tired.
i did miss my room and it imbues me with energy.


passing on more info


if you're at the fed, you would be really happy about this. bernanke is coming to speak tomorrow and they can say what the fed can do, they have and they did so quickly.

of course, this needn't be due to TARP money and TAF. part of this could simply just be declining risk aversion based on the intuition that things will implicitly go back to normal and the virtually explicit government backstops.

on wednesday and this weekend, we should go back to the problem of how the US current account is going to adjust. that is still the gorilla in the room.


whenever i sit down with a math/stats text now, i smile because of this:

ME: "i cannot stand flipping back and forth to find references to equations"
HER: "yes, they should all make maths texts thousands of pages long and repeat each equation many times because jesse cannot remember his equations"
more interesting brain stuff: H.M also died recently

bush gave his farewell press conference, interesting phrases:

"sometimes you have misunderestimated me" and "i am a type-a personality"

recession in the rearview mirror

for those who want to know how this one stacks up so far. nice easy graphs


first tetris, now mdma. what doesn't cure PTSD?


young american chemists. tsk.
harold pinter, angry man, is dead.

the economist obituary went: "nothing in harold pinter's life explained the rage in him"

good... they probably tried to do a stock obituary where they tried to find some life anecdote/family circumstance and then relate it to his work.

maybe he just read stuff when he was young that pissed him off and shaped his outlook on life.


had a major headache on the plane. crappy movies, crappy tv shows. i ended up reading periodicals, flitting in and out of sleep and revisiting miseducation of lauryn hill. nostalgic album, very well written and conceived.



this one strikes me more than the others. there's always life, and a man should never be judged on his numbers or financial status.

that said, however, to build up something and see it all go to dust because you made an idiotic bet? i get pissed off enough when i lose some data/lose a computer game because i forgot to save or made a small mistake.

now you play a game called life, and something that you work so hard to build crashes down. yah yah blah we all shouldn't work so hard, we should all smell the roses. you slowly accumulate for 40 years, and your company, business and passion collapse b/c of a rush of blood to the head. but wow even i feel the loss. same with people who lose their savings.

well, when i blogged about the volkswagen short squeeze weeks ago i wasn't too fussed about it. i still think people who sell stuff short bear a risk. but you never truly know the faces on the other side of the transaction.


1. how does one learn how to use energy positively? the energy i have now comes because i am semi-tired, and it seems like i can't be bothered to sort out what is worth doing/worth saying. so often nowadays i am able to say, i need the energy tomorrow, so i will sleep tonight. but i can't do this tonight, so i just blabber.

2. usually, when i focus, once i get over the distraction hill, what i start doing becomes quite fun. this is, of course, momentum. tonight i feel like i can't use this energy productively. if i start focusing, then i fall asleep, because it is an energy that comes from lowering the dam due to tiredness, not the kind of energy that you get because the water overflows the dam. but sleep is so boring. i usually look forwards to relaxation but i actually feel quite tense, like it's wasting what i feel now.

3. i think having certain people around me actually puts me at ease.

4. one gets these moods because one is usually tired of directing energy externally (which is the order of things), and i might get easily tired of directing energy externally. so one lapses into lazy, internal type thinking. what is so interesting about this box anyway. other people have far more interesting boxes. aah, but i can't look into them.

5. one uses the same concepts for everything. what the hell does box mean. external, internal, hill. where are the frames of reference. there was a resolution once. if you find yourself thinking an old thought, cut yourself off, lazy! it's not like these things are new. they are a waste.

6. but it is scary to lose energy, even diffuse one.

7. external topics are common topics of conversation, because they allow two parties to focus upon a single fixed point of reference. who the hell can see what is inside a pin-hole box.

8. why use numbers anw if the information i put down carries no logical sequence?

9. people who read this pls don't get offended b/c i am a blabbering psychonaut who should go out and have fun. i should, but you guys do make me tense.

10. ok, now i am convinced that i am ready. i think i will wake up tomorrow and then i will be able to have a routine again.