Your New Healthcare System

Aug 2 2010

Clearly, this is a model of back-scratching, ignorance, not-caring, willful stupidity, crass overreaching, sleight of hand, class warfare, wishful thinking, arrogance, rank evil, or all of the above.

These idiots won’t be happy until they’ve destroyed the American economy.

Details here

So that’s what an unsophisticated investor looks like.

Jul 18 2008

(The excitable investors, that is, not Pakistanis in general)

Clues can be found in a Marketwatch article from yesterday evening:

Investors riot in Pakistan as market tumbles

Benchmark down for 15th straight session; loses 27.5% this year so far
By Polya Lesova, MarketWatch

NEW YORK (MarketWatch) — Popular anger over tumbling equity prices erupted in Pakistan on Thursday, underscoring the difficulties regulators face in attempting to prop up falling markets as turbulence in many of the world’s financial markets continues unabated.

The turmoil in Pakistan comes at a time when several emerging markets are considering market stabilization measures, while regulators in the United States are moving to limit short selling and speculation in the oil market.

Regulators in China have signaled their intention to stabilize the local market, which became the worst performer among global markets this week. India has suspended futures trading in several commodities.
In Pakistan on Thursday, more than 200 protestors attacked the Karachi Stock Exchange, the country’s main equity market, and demanded a temporary closure of the market to curb further drops in share prices, the BBC reported.

Smaller protests took place in Islamabad and Lahore.


For reasons not so easy to articulate, I find it breathtaking that such a reaction makes any sense at all to these aggrieved investors.

Capital markets wizards at work

Capital markets wizards at work

What, I ask myself, is the logical conclusion they’d expect here? To be offered their money back? By whom? With or without smoke-stains and cinders?

Are the investors in emerging Asian markets really so unsophisticated (Albania comes to mind, among others) that they’ll buy anything, at any price? I suppose so – this has happened throughout history, in Asia, the US, and elsewhere. But in the majority of those other cases that come to mind, when it all goes wrong, the populace doesn’t seem to automatically think that all can be made better by burning buildings down, do they?

Not only are such reactions destructive (to property and to society in general), they’re also of no use in resolving the problem.

Some folks, I suppose, should be completely protected from themselves, and prohibited from taking actions they might later regret. Much the same, I further suppose, as special needs kids are sometimes not allowed out of the house without a styrofoam-lined helmet.

Such paternalism would be troubling to those of us who feel able to take responsibility for our own actions, but, by definition, we’re also not the sort of people who’d think burning down the stock exchange (which, really, is just a building, and had no effect on the stupid prices people were willing to stupidly pay for securities, right?) was a great idea. The Pakistani authorities’ “styrofoam helmet” for the markets includes circuit breakers to dampen price volatility, short-selling limitations, and a “market stabilization fund”. Much the same set of tools has been used by other governments over the years, with little beneficial result.

The connection made in the original article to US commodity (primarily oil) markets and allegations of skullduggery in shorting of financial behemoths such as Fannie Mae, Freddie Mac, Lehman, et al is apt, though the differences between the two situations are meaningful. When you add in the other bugbear, the rapidly deflating asset (real estate) bubble, within the US, the focus is on systemic risk (in the financial behemoths) and pure political grandstanding (regarding the oil futures markets and residential real estate), but surely, a minimal number of buildings will be burnt to express disappointment.

The point the two situations have in common is the ultimate futility of efforts to game the market excessively, from either the regulators’ or the speculators’ side of the table. Market stabilization fund? Ask George Soros what he thinks of the efficacy of such devices.

Market volatility curbs? They are a band-aid solution, i.e. no solution at all. If the limits are hit on a given day (particularly down days), the selling frenzy can just as easily be pent-up until the next day. And the day after. In cases where limits on asset price increases would be helpful to halt bubbles of speculative excess (tech stocks in the 1990s, real estate more recently), the proper method isn’t price movement limitations, but instead should be monetary, in the form of interest rates and margin requirements.

Where does it all end? Not in violence, and not in wanton destruction of real property. Too many more gimmicks, such as stimulus checks designed to gull the electorate into thinking all’s well, or handouts to flagrantly uncreditworthy home buyers, and the road to the end of this mess gets steeper and more slippery. Oddly enough, that monetary hammer mentioned above, in the form of interest rates, can play a big part in solving the current woes, though it won’t solve them quickly.

Devaluation of the dollar is the flip side of cheap credit, and while dollar devaluation is a subject for another day, reducing speculative excesses by making money more expensive to deploy in speculation, whether it be in commodities, real estate, or the financial markets seems likely to be the only path out of the current unpleasantness.

If that turns out to be the case, many will feel the pinch. Fortunately, the stoics who make up a lot of the American population, sophisticated or not, seem more likely to suck it up, endure the pinch, and exit the other side better off than they are today. An optimist would further hope that this was all done without the government stupidly taxing the starch out of the economy, but if the government does so, perhaps the government after them will repair the damage, and reap the delayed benefits.

Regardless of government policies, the flame-throwing non-sophisticates of the Pakistani markets may not fare better nearly as soon.

Stupid investment theses, poorly executed

May 6 2008

In an item in the May 5, 2008 WSJ, I saw the “Fund Track” column, by Daisy Maxey, entitled “Democratic Booster Blue Fund Group Has Been Singing the Blues Lately

The focus of the story was on a small Washington DC based fund that’s done poorly of late.

Blue Fund Group is having a rough year.

Blue Investment Management LLC, the fund group’s Washington, D.C., investment adviser, has liquidated Blue Small Cap Fund, which managed less than $1 million.

It is now in the process of changing the name of its Blue Large Cap Fund, which has a little more than $10 million in assets, to, simply, Blue Fund. So far this year, that fund has underperformed both its large-cap growth category and the Standard & Poor’s 500-stock index, according to Chicago investment-research firm Morningstar Inc.

Odd, that. Not the results, particularly, but the fact that the story appears at all. “What’s the problem?”, I wondered, and what makes this tiddler of a fund worthy of coverage in the WSJ? I read on…

In addition, in a rather odd development, $9.5 million of the large-cap fund’s assets were invested recently by a trust that has said it may hedge its bets on some of the fund’s holdings.

Blue Investment Management was formed in 2006 to invest in companies that “act blue” and “give blue,” those that engage in practices consistent with progressive values and give the majority of their political contributions to Democratic candidates.

Following a proprietary managed index of U.S. companies, the large-cap fund invests in “blue” companies in the S&P 500 index, while the small-cap offering had invested in “blue” companies in the Russell 2000 index.

Additional info, according to an April 2007 article at Morningstar:

The Blue funds (Blue Large Cap and Blue Small Cap), launched late last year, invest in companies that give a majority of their political contributions to Democratic candidates and organizations, in addition to passing various standard social screens. There are no funds focused specifically on Republican-leaning companies, though the Free Enterprise Action fund (FEAOX), launched two years ago, promotes free enterprise and opposes shareholder resolutions that might dampen companies’ profitability, including most SRI-type proposals. Also, the Camco Investors Fund (CAMCX) specifically uses socially conservative screening criteria, as do several of the religious funds we looked at in our earlier column, notably the Ave Maria and Timothy Plan funds.

Quintuple odd.

No “Republican-focused” funds? Because nobody would buy them, I presume, preferring instead to just focus on companies well-situated to make money.

Aside from the fact that the new biggest investor in Blue Funds may choose to hedge its bet, taking contrary positions to that of its now-majority owned fund, the slack-jawed investment thesis behind the fund is a real eye opener.

How is it, I wonder, that someone was able to correlate the political contribution tendencies of companies, and then to target them for investment? Wait – I’m not done yet: Of course it’s simple, though a bit labor-intensive, to do such a thing, but having done such a thing, how could someone have done such a bang up job of choosing a thesis with a correlation apparently approaching -1? And then put client money behind such a spastic idea? And still slept at night?

It’s possible to grotesquely overthink investment theses, even when, unlike the strategists of the Blue Fund, you leave political proclivities out of the mix. Running such a tiny fund, and apparently running it nearly into the ground, causing closure of the “small cap” side of the fund, abandonment of the “large cap” moniker on the other half, and causing the new largest investor (sort of) to consider hedging its exposure to your attempts at splitting atoms with your mind (and political views) seems like an item one would leave off one’s resume.

The same goes for all “Socially Responsible Investing”, if you ask me, not that you did.

Unless, of course, the goal isn’t to make money at all.

Granted, it’s been a tough year in the markets, but it’s not been impossible to make money. For comparative purposes, one of the things I do on a daily basis, with a very small portion of my time, is participate in running a proprietary hedge fund. The assets under management seem similar to those reported for the Blue Fund family by the WSJ, yet our focus is solely on making profits. And overall, we’re up more than 40% so far this year.

It’s not impossible, and properly done, it’s not even particularly difficult. The difference might be that there’s no ideology behind our investment choices, and no attempts at claiming correlations that don’t exist in the real world.

There’s nothing wrong with social, or political, responsibility. Neither has much of anything to do with investing, however. I don’t invest to help those in need or to advance a political point of view – I invest to make profits. To help those in need, I give to the Red Cross. And to advance a political point of view, I vote.

In investing, as in many other things, avoiding confusion about why you’re doing it is a fundamental prerequisite to being even mildly competent.

Mobile phone radiation wrecks your sleep (?)

Jan 20 2008

From today’s Independent, a story about a study funded by the mobile phone companies:

Radiation from mobile phones delays and reduces sleep, and causes headaches and confusion, according to a new study.

The research, sponsored by the mobile phone companies themselves, shows that using the handsets before bed causes people to take longer to reach the deeper stages of sleep and to spend less time in them, interfering with the body’s ability to repair damage suffered during the day.

Published by the Massachusetts Institute of Technology’s Progress in Electromagnetics Research Symposium and funded by the Mobile Manufacturers Forum, representing the main handset companies, it has caused serious concern among top sleep experts, one of whom said that there was now “more than sufficient evidence” to show that the radiation “affects deep sleep”.

(ellipsis mine)

The report refers to a “massive study” of 1,656 Belgian teenagers, the results of which are claimed to complement the lab studies done by MIT et al. Those MIT studies noted a significant effect (with “significant” left undefined in the article) on the level of tiredness found in study participants the day after exposure to RF in the 884MHz range.

The embarrassed Mobile Manufacturers Forum played down the results, insisting – at apparent variance with this published conclusion – that its “results were inconclusive” and that “the researchers did not claim that exposure caused sleep disturbance”.

The MMF should be embarrassed, for two reasons. First, it’s silly to assume that RF emissions have no effect on their surroundings, and it’s not unreasonable to try to quantify these effects, good, bad, or indifferent. More importantly, if you’re going to downplay the results of the study you’ve funded as “inconclusive”, you ought to at least not do so by simply & directly contradicting the stated result of the study. While holding no opinion on the degree to which sleep can be disrupted, I’m sympathetic to their conundrum, but there are far more credible ways to spin a study’s results than just to reflexively deny its conclusion.

In particular, the definition of “very tired”, judged in isolation from other influences on sleep, seems subjective to the point of absurdity, particularly in a study of only 70-odd people. I’m sure they considered this, of course, but it would be nice to read how they’d attempted to adjust for the effect.

It’s an interesting article either way, made more so by the omission (if not in the study, in the article itself) of any control group who’d simply used a wired phone during the same periods of the day. The lab tests, with RF but sans actual phone use, go some (undefined) way toward finding causality, but while studying the overall effect of late night phone use, it seems ludicrous to ignore the fact of actual conversation.

Because, at least in this case, the medium, all due respect to Marshall McLuhan, is not the message.

I guess that’s one indication of bad economics

May 21 2007

Who knew that trail mix was cheaper than corn? Not me, at least not until this morning’s WSJ article entitled “With Corn Prices Rising, Pigs Switch To Fatty Snacks“.

GARLAND, N.C. — When Alfred Smith’s hogs eat trail mix, they usually shun the Brazil nuts.

“Pigs can be picky eaters,” Mr. Smith says, scooping a handful of banana chips, yogurt-covered raisins, dried papaya and cashews from one of the 12 one-ton boxes in his shed. Generally, he says, “they like the sweet stuff.”

Mr. Smith is just happy his pigs aren’t eating him out of house and home. Growing demand for corn-based ethanol, a biofuel that has surged in popularity over the past year, has pushed up the price of corn, Mr. Smith’s main feed, to near-record levels.

Mr. Smith says he’s paying about $63 to feed a single pig for five or six months before it goes to market — up 13% from last year. His costs would be even higher if he didn’t augment his feed with trail mix, which he says helps him save on average about $8 a ton on feed.

(ellipsis mine)

The presumption that corn-based ethanol was somehow going to be a great net-positive for the US economy has always been based on the thinnest of pretense, put forward by the farm lobby in the US. As covered in an earlier post here (regarding Michael Bloomberg’s energy plan), corn is just about the stupidest way to make ethanol, perhaps second only to making ethanol out of oil itself, if such a thing is even possible.

And even if it were technically wise to do so, the mad rush to corn-based ethanol, driven by government mandates and subsidies that help nobody but the farm lobby, was always going to affect the supply/demand curve for corn.

Better late than never, there appears to be a sudden realization of the problem, if recent press mentions count for anything:

The items above are cherry-picked from among many, many other such recent stories. The last two are of a genre that puts the lie to the entire boondoggle being foisted onto the American consumer, particularly given that cane-based ethanol actually generates far more energy than it takes to produce, unlike corn-based ethanol. Cane-based suffers, however, from the choke-hold the farm lobby continues to wield on the American legislative windpipe.

Much the same as, say, in the waste industry, where at a high enough price for landfill space, people are willing to recycle, prices for oil in the energy market can cause people to willingly overpay for alternatives. But when the costs of the alternatives, direct and indirect, become high enough, as they appear to be doing in the ethanol market, consumers are certain to rethink that entire “energy independence” thing.

Corn based ethanol is “ethanol done wrong”. Add to that the fact that it’s “ethanol done expensive”, and you can just wait for the increased backlash, attempting to drown out the farm lobby. The question, of course, is whether our legislative overlords will be allowed to listen and undo the damage they’ve done over the past twenty years on this front.

A final tidbit from the WSJ piece:

Dwight Hess, a cattle feedlot operator in Marietta, Pa., is located in the heart of snack country, near Hershey and Herr Foods Inc., a maker of potato chips, pretzels and snack mixes. His cattle ration consists of about 17% “candy meal,” a blend of chocolate bars and large chunks of chocolate; 3% of what he calls “party mix,” a blend of popcorn, pretzels, potato chips and cheese curls; 8% corn gluten; and the remainder corn and barley he grows. He says the byproducts save him about 10% on feed costs. Still, it costs him about 65 cents to put a pound on a steer, up from 42 cents last year.

Near the Snake River in Idaho, Cevin Jones of Intermountain Beef is struggling to feed his 12,000 cattle in light of higher feed costs. Traditionally, he has used up to 30% corn or other grains in his feed mix. This year he’s using 100% byproducts, including french fries, Tater Tots and potato peels.

“It’s kind of funny,” Mr. Jones says, “every once in a while, you can spot a couple of cattle fighting over a whole potato.”

I suppose that soon, my family too will be able to eat junk food more cheaply than grains. I’m not looking forward to that, and I have something like 2% of the US population (plus 80% of the legislature) to thank for that sad fact.

See also – Corn Too Expensive? Turn Pigs into Ethanol

Applicable not just to medicine

Apr 3 2007

I’m playing catch-up after a deliver logjam for my favorite weekly newspaper, the Economist. While engaged in that catching up, I bookmarked a story from the end of February entitled “Signs of the times” (subscription req’d). The title was only mildly interesting – it was the subtitle that grabbed me:

Why so much medical research is rot

The opening premise?

PEOPLE born under the astrological sign of Leo are 15% more likely to be admitted to hospital with gastric bleeding than those born under the other 11 signs. Sagittarians are 38% more likely than others to land up there because of a broken arm. Those are the conclusions that many medical researchers would be forced to make from a set of data presented to the American Association for the Advancement of Science by Peter Austin of the Institute for Clinical Evaluative Sciences in Toronto. At least, they would be forced to draw them if they applied the lax statistical methods of their own work to the records of hospital admissions in Ontario, Canada, used by Dr Austin.

Statistics is a subject that I recall a lot of classmates having agonized over. I’m willing to stipulate that doctors are, as a group, noticeably smarter than average. Perhaps I simply hope that to be the truth, but I don’t think so. They’re certainly more educated than average, and in any event, statistics can’t be as hard as, say, the art of medical diagnostics, pharmaceuticals mastery, or remembering which bone is connected to the knee bone.

As I recall, the most important thing that came out of my several university statistics classes was the notion that correlation does not imply causation.

Dr. Austin wasn’t railing against any particular proclaimed result in medicine – he was talking about ignorance of one important tenet of statistical interpretations: complexity matters.

He also wanted to explain why so many health claims that look important when they are first made are not substantiated in later studies.

The confusion arises because each result is tested separately to see how likely, in statistical terms, it was to have happened by chance. If that likelihood is below a certain threshold, typically 5%, then the convention is that an effect is “real”. And that is fine if only one hypothesis is being tested. But if, say, 20 are being tested at the same time, then on average one of them will be accepted as provisionally true, even though it is not.

From another presentation given at the same meeting:

Unfortunately, many researchers looking for risk factors for diseases are not aware that they need to modify their statistics when they test multiple hypotheses. The consequence of that mistake, as John Ioannidis of the University of Ioannina School of Medicine, in Greece, explained to the meeting, is that a lot of observational health studies—those that go trawling through databases, rather than relying on controlled experiments—cannot be reproduced by other researchers.

Net result? Observational studies, particularly those that involve backtesting events which have already occurred, are susceptible to problematic statistical bias, specifically because “controlled experiments” aren’t possible after the fact.

Luckily, like so much else in statistics, there’s a way to factor out the “fuzz” generated by backtesting. The root problem is that not all researchers are aware of the need for such factoring-out.

The article concludes:

So, the next time a newspaper headline declares that something is bad for you, read the small print. If the scientists used the wrong statistical method, you may do just as well believing your horoscope.

Truer words were never spoken, and note well that the final reference is to “scientists”, not just to medical scientists. Beware the statistical innumeracy!