Wednesday, October 30, 2013

Ulyana Sergeenko - FW - Paris

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      Ulyana Sergeenko - FW - Paris

      Photos by Fred - Easy Fashion Paris


Tuesday, October 29, 2013

New Post on Eat Move Sleep Blog

Yesterday, the Dan's Plan blog Eat Move Sleep published a blog post I wrote about sleep, artificial light, your brain, and a free computer program called f.lux that can help us live healthier lives.  Head over to Eat Move Sleep to read it.

The "triviality" of the EMH

By way of Lars Syll, some comments from Robert Shiller on the difference between the obviously true (and not very interesting) version of the Efficient Markets Hypothesis -- "markets are hard to beat)" -- and the obviously false (yet still widely believed) version that markets possess some kind of mysterious and magical wisdom. The latter is probably the most damaging perversion in finance; maybe in all of economics. Shiller's is also my view, but of course, this is not at all a coincidence as I been influenced by many things Shiller has written over the years: 
Professor Fama is the father of the modern efficient-markets theory, which says financial prices efficiently incorporate all available information and are in that sense perfect. In contrast, I have argued that the theory makes little sense, except in fairly trivial ways. Of course, prices reflect available information. But they are far from perfect. Along with like-minded colleagues and former students, I emphasize the enormous role played in markets by human error, as documented in a now-established literature called behavioral finance …

Actually, I do not completely oppose the efficient-markets theory. I have been calling it a half-truth. If the theory said nothing more than that it is unlikely that the average amateur investor can get rich quickly by trading in the markets based on publicly available information, the theory would be spot on. I personally believe this, and in my own investing I have avoided trading too much, and have a high level of skepticism about investing tips.

But the theory is commonly thought, at least by enthusiasts, to imply much more. Notably, it has been argued that regular movements in the markets reflect a wisdom that transcends the best understanding of even the top professionals, and that it is hopeless for an ordinary mortal, even with a lifetime of work and preparation, to question pricing. Market prices are esteemed as if they were oracles.

This view grew to dominate much professional thinking in economics, and its implications are dangerous. It is a substantial reason for the economic crisis we have been stuck in for the past five years, for it led authorities in the United States and elsewhere to be complacent about asset mispricing, about growing leverage in financial markets and about the instability of the global system. In fact, markets are not perfect, and really need regulation, much more than Professor Fama’s theories would allow …

Friday, October 25, 2013

Economists begin to wonder -- are financial markets inherently unstable?

Justin Fox has a nice piece in the Harvard Business Review looking at how economics and finance have changed in the years since the onset of the crisis. He offers several conclusions, but one is that financial economists are now, much more than before, coming to accept the notion that financial markets are by their nature inherently unstable. Can you imagine that? From the article:

Before the late 1950s, research on finance at business schools was practical, anecdotal, and not all that influential. Then a few economists began trying to impose order on the field, and in the early 1960s computers arrived on college campuses, enabling an explosion of quantitative, systematic research. The efficient market hypothesis (EMH) was finance’s equivalent of rational expectations; it grew out of the commonsense observation that if you figured out how to reliably beat the market, eventually enough people would imitate you so as to change the market’s behavior and render your predictions invalid. This soon evolved into a conviction that financial market prices were in some fundamental sense correct. Coupled with the capital asset pricing model, which linked the riskiness of investments to their return, the EMH became a unified and quite powerful theory of how financial markets work.

From these origins sprang useful if imperfect tools, ranging from cost-of-capital formulas for businesses to the options-pricing models that came to dominate financial risk management. Finance scholars also helped spread the idea (initially unpopular but widely accepted by the 1990s) that more power for financial markets had to be good for the economy.

By the late 1970s, though, scholars began collecting evidence that didn’t fit this framework. Financial markets were far more volatile than economic events seemed to justify. The link between “beta”—the risk measure at the heart of the capital asset pricing model—and stock returns proved tenuous. Some reliable patterns in market behavior (the value stock effect and the momentum effect) did not disappear even after finance journals published paper after paper about them. After the stock market crash of 1987, serious questions were raised about both the information content of prices and the stability of the risk measures used in finance. Researchers studying individual investing behavior found systematic violations of the premise that humans make decisions in a rational, forward-looking way. Those studying professional investors found that incentives cause them to court tail risks (that is, to follow strategies that are likely to generate positive returns most years but occasionally blow up) and to herd with other professionals (because their performance is judged against the same benchmarks). Those looking at banks found that even well-run institutions could be wiped out by panics.

But all this ferment failed to produce a coherent new story about how financial markets work and how they affect the economy. In 2005 Raghuram Rajan came close, in a now-famous presentation at the Federal Reserve Bank of Kansas City’s annual Jackson Hole conference. Rajan, a longtime University of Chicago finance professor who was then serving a stint as director of research at the International Monetary Fund (he is now the head of India’s central bank), brought together several of the strands above in a warning that the world’s vastly expanded financial markets, though they brought many benefits, might be bringing huge risks as well.

Since the crisis, research has exploded along the lines Rajan tentatively explored. The dynamics of liquidity crises and “fire sales” of financial assets have been examined in depth, as have the links between such financial phenomena and economic trouble. In contrast to the situation in macroeconomics, where it’s mostly younger scholars pushing ahead, some of the most interesting work being published in finance journals is by well-established professors out to connect the dots they didn’t connect before the crisis. The most impressive example is probably Gary Gorton, of Yale, who used to have a sideline building risk models for AIG Financial Products, one of the institutions at the heart of the financial crisis, and has since 2009 written two acclaimed books and two dozen academic papers exploring financial crises. But he’s far from alone.

What is all this research teaching us? Mainly that financial markets are prone to instability. This instability is inherent in assessing an uncertain future, and isn’t necessarily a bad thing in itself. But when paired with lots of debt, it can lead to grave economic pain. That realization has generated many calls to reduce the amount of debt in the financial system. If financial institutions funded themselves with more equity and less debt, instead of the 30-to-1 debt-to-equity ratio that prevailed on Wall Street before the crisis and still does at some European banks, they would be far less sensitive to declines in asset values. For a variety of reasons, bank executives don’t like issuing stock; when faced with higher capital requirements, they tend to reduce debt, not increase equity. Therefore, to make banks safer without shrinking financial activity overall, regulators must force them to sell more shares. Anat Admati, of Stanford, and Martin Hellwig, of the Max Planck Institute for Research on Collective Goods, have made this case most publicly, with their book The Bankers’ New Clothes, but their views are widely shared among those who study finance. (Not unanimously, though: The Brunnermeier-Sannikov paper mentioned above concludes that leverage restrictions “may do more harm than good.”)

This is an example of what’s been called macroprudential regulation. Before the crisis, both Bernanke and his immediate predecessor, Alan Greenspan, argued that although financial bubbles can wreak economic havoc, reliably identifying them ahead of time is impossible—so the Fed shouldn’t try to prick them with monetary policy. The new reasoning, most closely identified with Jeremy Stein, a Harvard economist who joined the Federal Reserve Board last year, is that even without perfect foresight the Fed and other banking agencies can use their regulatory powers to restrain bubbles and mitigate their consequences. Other macroprudential policies include requiring banks to issue debt that automatically converts to equity in times of crisis; adjusting capital requirements to the credit cycle (demanding more capital when times are good and less when they’re tough); and subjecting highly leveraged nonbanks to the sort of scrutiny that banks receive. Also, when viewed through a macroprudential lens, past regulatory pressure on banks to reduce their exposure to local, idiosyncratic risks turns out to have increased systemic risk by causing banks all over the country and even the world to stock up on the same securities and enter into similar derivatives contracts.

A few finance scholars, most persistently Thomas Philippon, of New York University, have also been looking into whether there’s a point at which the financial sector is simply too big and too rich—when it stops fueling economic growth and starts weighing on it. Others are beginning to consider whether some limits on financial innovation might not actually leave markets healthier. New kinds of securities sometimes “owe their very existence to neglected risks,” Nicola Gennaioli, of Universitat Pompeu Fabra; Andrei Shleifer, of Harvard; and Robert Vishny, of the University of Chicago, concluded in one 2012 paper. Such “false substitutes...lead to financial instability and could reduce welfare, even without the effects of excessive leverage.”

I shouldn’t overstate the intellectual shift here. Most day-to-day work in academic finance continues to involve solving small puzzles and documenting small anomalies. And some finance scholars would put far more emphasis than I do on the role that government has played in unbalancing the financial sector with guarantees and bailouts through the years. But it is nonetheless striking how widely accepted in the field is the idea that financial markets have a tendency to become unhinged, and that this tendency has economic consequences. One simple indicator: The word “bubble” appeared in 33 articles in the flagship Journal of Finance from its founding, in 1946, through the end of 1987. It has made 36 appearances in the journal just since November 2012.
Too bad this shift didn't take place 20 years ago, or maybe 40 years ago.

Thursday, October 24, 2013

UW-La Crosse Chancellor Joe Gow has issues with sifting and winnowing.

A geography professor at the University of Wisconsin-La Crosse, Rachel Slocum, made the mildly controversial point in an email to her students that Republicans in the House of Representatives had brought about the partial closure of the US government, and had therefore brought about the closure of the US Census web site.  This closure prevented her students from completing their assignments.  She never used abusive or offensive language.

Her point raised howls among the conservative blogasphere and media; when confronted with this, her boss, UW-La Crosse Chancellor Joe Gow, publicly reprimanded her for expressing a factually based opinion to her class.  In my view, it was his job to back her--not to agree with her opinion, but rather to defend her right to express it.

The irony is that Wisconsin is the very state that in many ways laid the foundation for academic freedom in state supported universities.  When Richard Ely was attacked more than 100 years ago for advocating in his classes on behalf of labor unions, the Regents of the University of Wisconsin rose to defend him.  As the Wisconsin Historical Society writes:
In 1894 Ely was teaching economics at Madison, including the various socialist and communist economic theories gaining popularity at the time. When this was discovered by Oliver E. Wells, State Superintendent of Public Instruction, Ely was attacked in the press not just for teaching left-wing theories to Wisconsin's youth but also for supposedly advising radical activists who were organizing a strike in Madison. When his dismissal was demanded, the university regents investigated his activities. 
After a series of witnesses had testified, the regents found no cause to fire Ely. Instead, they issued a famous statement defending the importance of academic freedom in a democracy. "Whatever may be the limitations which trammel inquiry elsewhere," they wrote, "we believe the great state University of Wisconsin should ever encourage that continual and fearless sifting and winnowing by which alone the truth can be found." That statement has become one of the foundation stones of intellectual freedom in America, and a hallmark of the University of Wisconsin.     
One wonders what Chancellor Gow would have done with Ely.  

Full disclosure: this is personal for me.  I was on the faculty at Wisconsin for 12 years (after getting my Ph.D. there), and was always proud to teach there, in part because of the plaque on Bascom Hill that memorialized sifting and winnowing.  It just made me feel good to walk by it, because I believed that the place I worked believed it.

But even more important, my mother taught at Wisconsin-La Crosse for decades, serving as chair of the English Department there for many years.  She also began the Women's Studies program there--surely, a controversial thing to do at the time she did it.   I can't help but wonder whether Chancellor Gow would have had the vision and the fortitude to support her important work.

Wednesday, October 23, 2013

Shiller, Fama and all that...

I couldn't help but write a little in my latest Bloomberg column on the strange choice for this year's Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. For readers of the column I wanted to give a few more links here to some stuff I've written before on the Efficient Markets Hypothesis, an idea that I think has been cause for an enormous waste of intellectual energy over 40 years or so. It has many versions. They are either 1) clearly false and so uninteresting or 2) clearly and unsurprisingly true, and hence uninteresting. That's my opinion in short; links to more extended discussions below.

The aforementioned Prize certainly involves a weird juxtaposition of two names -- Robert Shiller and Eugene Fama -- that you wouldn't normally think of seeing together. The one, Shiller, is a great enthusiast for markets, but also a staunch realist who thinks markets can and do go awry in lots of ways, creating bubbles, wasting resources, etc. The other, Fama, is a great enthusiast for markets who thinks they never go wrong, ever, and have an almost magical capacity to steer investments wisely (I think, but it's pretty hard to know exactly what he believes). So wait -- I guess they are clearly linked after all by the label "market enthusiast." There the similarity ends.

I've written previously on a number of occasions about the dreadfully long and confused arguments over the Efficient Markets Hypothesis. See here for a general introduction, here for some very recent evidence that pretty much kills the idea in one swoop, and here for a discussion of the perversions of normal logic often used by defenders of the EMH to prop the idea up in the face of all evidence. If writing papers about the EMH was banned I think finance would immediately take a step in the right direction. I just don't think it is interesting. Saying that the "market is hard to beat" and is therefore "efficient" in some peculiar sense isn't saying much at all.

20th Carole Nash Classic Motorcycle Mechanics Show

Stafford Comes but twice a year and it's always a great opportunity to catch up with people that I have met at shows past. I also got some sketching in too...

1954 Rennfox / Sportmax 

(ink sketch)
Well I couldn't let this one get away. NSU only made 6 of these GP bikes and this one is sporting a factory fitted 250cc engine rather than the standard 125cc. The Original 125 engine was taken from this bike to power the Baumm II which took world records in 1956, one of them stood at 150.3mph.

1923 Cotton

(ink sketch)
I'm a sucker for a Blackburne engine and the triangulated frame of a Cotton always looks dynamic. Apparently this machine is good for 70mph not bad for a 90 year old machine.

1924 Norton Big Four

(ink sketch)
Norton Flat tanks always look good and this is a particularly early example, plus it was the only bike on the Vintage and Veteran Stand that I hadn't sketched. 

Twin Pot Cycle Master

(ink sketch)
I alway look forward to seeing what the NACC (National Autocycle and Cyclemotor Club) bring to the Stafford show and this year they didn't disappoint. I had to look twice when looking at this machine as it has two engines instead of the usual one hidden away within the specially adapted bycycle hub. Apparently the owner and builder of this wonderful machine got fed up of having to push it up hills. The Cylinders are opposed which apparently makes it sound good but if they worked in unison they would probably produce a bit more poke.
Bespoke chokes made from matching ha'pennys by dates

 Other Stafford Finds....

 1937 Motorconfort
If I had the cash I would have snapped this up.

 Zedel engine on the 1904 Peugeot on the Vin & Vet Stand
 Yamaha Scooter in the Autojumble
 Something about this CMZ...
Wemoto's Coccinella TT50 Mk1
Built from a combination of bycycle and moped bits this was a great little build. 
 Great lineup of trials bikes in the jumble
 Love these JAP Speedway bikes.

Perfecto Story - Paris Fashion

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       Perfecto Story - Paris Fashion Week      

     Le Perfecto traverse les modes et reste toujours à la mode. Avec son petit côté 
     rebelle embourgeoisé (à moins que ce soit le contraire), il est un élément essentiel 
     de la garde-robe des demoiselles et des dames aussi ...
     Photos by Farid - Easy Fashion Paris
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Sunday, October 20, 2013

World Topo Map 100th Anniversary

2013 marks the 100th anniversary of an initiative to create the International Map of the World at 1:1M scale. The project, although never completed, left a legacy of standards that are still used in modern cartography and data that support map production til this day.

It all started with an idea by German geographer Albrecht Penck who proposed a worldwide system of maps at the Fifth International Geographical Conference in 1891. His solution, called the International Map of the World, would consist of 2,500 individual maps, each covering four degrees of latitude and six degrees of longitude at a scale of 1:1 million (1 cm = 10 km). But it wasn’t until 1913 that Penck's idea came to fruition when an international conference in Paris established standards for the maps, which became also known as the Millionth Map of the World due to the map series' scale.

Australian version of Topo 1M map by Geoscience Australia

The standards required that maps would use the local form of place name in the Roman alphabet (thus, mandating translation of local names from languages that use other alphabets). Map colours were also standardized so towns, railroads, and political boundaries would be represented in black, roads would be red, and topographic features would be brown. Individual maps were to be indexed according to a common system (used to this day).

It was agreed that each country would be responsible for create their own maps but not many countries had the capacity to undertake this task so, a lot of early maps were created by a handful of Anglo-Saxon countries. By the 1930s, 405 maps had been produced although only half adhered to the standards of the project. The newly-created United Nations took control of the Millionth Map project in 1953 but the international interest creating the maps kept waning over the following decades. By the 1980s, only about 800 to 1000 total maps had been created (and less than half were accurate or based on the standards), and the U.N. stopped issuing their regular reports about the status of the project.

The data captured over the past 10 decades and used in the production of the Millionth Map of the World filtered through to many projects and formed the basis of VMap0 GIS dataset and other derived products. It is hard to get excited about 1:1M scale maps any more when you have Google Maps but let’s not forget that just 8 years ago, before Google created the world map at street level accuracy and before OpenStreetMap started its crowdsourcing initiative, this was the highest resolution available which was of consistent quality for almost the entire world. Although 1:1 million scale is not suitable for navigation purposes, maps at this and smaller scales remain popular choice as general reference maps, or as a backdrop for thematic mapping, or for various infographics.

Index to International Maps of the World
Information sourced from About Geography

Monday, October 14, 2013

Scammell Pioneer Sketch Session with Stefan Majoram

After a Facebook post by Stefan Marjoram asking about a truck he had found at a local sports ground, Stefan and I couldn't resist making an impromptu trip to get some sketching done.

(ink sketch)

Stefan's sketches can be found on his wonderful Sketch Blog. Stefan was kind enough to send me one of the sketches as a gift, what a wonderful bloke.

(Stefan's ink sketch)

We didn't meet the owner of this wonderful vehicle but we guess it is an army truck. 
768 Scammells were built from 1937 onwards. 
They were used in the war to tow artillery such as the 7.2 inch howitzer

 Love this 6 cylinder Gardner, it produces 102bhp
 Some great large shapes on this beast of a truck.

Elisa Nalin - les Tuileries - Paris

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      Elisa Nalin - les Tuileries - Paris

     Elisa Nalin est la seule styliste capable de conserver son équilibre en toutes
     circonstances. J'ajoute qu'elle aime les jupes avec des motifs de fleurs imprimées.
     Et en plus, elle est sympa ...

     Photo by Fred - Easy Fashion Paris 

Paris Fashion Week - at DIOR

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      Photo by Fred - Easy Fashion Paris

Giovanna Battaglia - Odéon - Paris

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      Giovanna Battaglia - Odéon - Paris

     La flamboyante Giovanna a montré une fois de plus, lors de la dernière Fashion
     Week, que la Mode est pour elle une bataille gagnée d'avance.

     Photo by Fred - Easy Fashion Paris

Lea - les Tuileries - paris

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      Lea - les Tuileries - Paris

     J'ai croisé la belle Lea aux Tuileries, pendant la dernière semaine de la Mode.
     Dans la vie, Lea est Stylist pour les photos Shoots. Lea porte une jolie veste 
     Daniela Spillmann, des chaussures par Navy Boots. jeans by H&M et sac vintage.
     Le parfum préféré de Lea est de Chloé. Le rêve le plus grand de Lea serait de
     rencontrer Karl Lagerfeld et son pire cauchemar de se retrouver nue alors que 
     tous ses vêtements seraient en train de tourner dans la machine à laver.

     Photos by Fred - Easy Fashion Paris
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Paolo - les Tuileries - Paris

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      Paolo - les Tuileries - Paris

     C'est la seconde fois que je croise Paolo. Dans le genre dandy moderne, je trouve
     son look assez réussi. Le rêve de Paolo serait de figurer dans la rubrique des gens 
     stylés de Marie-Claire. Son cauchemar serait de commettre un "fashion faux pas" et
     de se retrouver à l'index sur les blogs de Mode. Paolo porte une veste Asos, une 
     chemise Dior, un gilet The Kooples. Ses chaussures sont des Prada et son pantalon
     est de chez Acne. Le parfum favori de Paolo est de Tom Ford.

     Photos by Fred - Easy Fashion Paris
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Fashion Highlanders - Paris Fashion Week

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      Fashion Highlanders - Paris Fashion Week      

      Le motif écossais est tendance. Quelques exemples de looks au tartan affiché, croisés
      lors de la dernière semaine de la Mode.      

       All Pics by Farid - Easy Fashion Paris