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June 2006 update for MCE 2005 Rollup 2

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Maybe they should learn to pronounce the vowel “o” properly?

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Is to make it a game show with a prize. I’ll leave the details to your imagination.
An election campaign already is crass entertainment, might as well take advantage of it.

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I mentioned this to an officemate years ago once, but I never was quite satisfied with the explanation that there is a certain amount of excess return built into the price of a company’s stock as its risk premium, but which can be diversified away through some portfolio of disparate stocks.

If, merely by holding a diversified portfolio, the aggregate risk can be reduced, then one would expect the return demanded for such a portfolio to be less than the sum of the returns of the individual stocks. Yet this is not the case. So we must assume either the portfolio is overperforming, the individual stocks are underperforming, or both. On the other hand, it would seem that the risk premium of any individual stock would be arbitraged away by people holding the most diversified portfolios containing it, thus it is strange that an individual stock could retain an undiversified risk premium. Thus it must not, at least not fully. Its return (and the price it sells for) is also determined by the availability for sale of other not-fully-correlated stocks and their characteristics, even ones that have no material effect on the company’s performance. This is a sure sign of value arising from the demand for the instrument unrelated to its underlying. It would seem to be mispriced as an individual stock. Perhaps an equilibrium will be struck, but it is still paradoxical to talk about the risk premium of individual stocks as a property of that stock alone.

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Some kid named Sameer Mishra won the national Spelling Bee a couple of days ago. He is Indian. It occurred to me that there was definitely another Indian who won the Spelling Bee not long ago, so I looked it up. Turns out there were 4 in just the last 7 years, so Indians have pretty much taken over the contest. This article tries to guess why — I’ll defer my own explanation till later.

Then I decided to look at the other teenage academic contest, Mathcounts. A Darryl Wu won this year’s national contest. Obviously he is Chinese, but there has also been 9 Chinese winners in the last 12 years.

So there you have it, Indians and Chinese basically split the major academic contests at the secondary school level between themselves. What’s the explanation? Demographically, there has been a major explosion of educational immigration from both China and India since the late 1980s, and especially in the 1990s. This has resulted in a veritable brain drain in the home countries, but the side effect is that the second-generation Indians and Chinese growing up in the US are beginning to show what might be called the “disproportionality effect”: levels of achievement not matched by population numbers.

Of course, it’s the so-called “elites” that come to the US, but those countries have large enough base populations and enough reserve “elites” that what these kids achieve as they move through the US school system might just be a harbinger of what an undistorted, competitive world will look like in 20-50 years.

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For $20 you can SuperSize your next paid roundtrip on Northwest Airlines® , Northwest Airlink or KLM Royal Dutch Airlines and earn an additional 1,000 Bonus Miles*. These Bonus Miles are in addition to the regular credited flight miles you will earn for your paid travel.

Says a “special offer” on the Northwest Airlines web page. A bit of quick math shows that these days a frequent flyer mile is only worth between 1.5 to 2 cents when all is said and done, so this offer isn’t special at all. They must think we’re stupid. Or is this another way to boost revenue?
(Read the article)

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The question came up about China being both a recipient and giver of foreign aid. Actually this happens with many countries. On the face of it, this seems like an absurd and illogical situation, but it brings up interesting questions about these funny money flows. To understand this, we need to look at these transactions beyond the mere exchange of money in the bank, and we need not stop with foreign aid.

When countries or individuals give, it is not a simple money transaction, but it is to fulfill some economic, political, social, or moral directive. Economically, a household or a country may be both an investor and a borrower, as this may improve the rate of return. Politically, a country may use aid for leverage, and aid in this case is simply a mediator of complicated leverage relationships that happen to have cycles. Socially, much the same happens, except in this case it is a mediator of social cohesion and community. Morally, the decision to give may be completely independent of one’s own financial condition, and hence there is no dilemma; an excellent example is that a street-begger may also give, and in fact people are often moved by this. Something less dramatic is more evident: by living in a community, everyone is receiving some form of services of value, but that does not prevent that person from giving.

Sometimes, direct money transactions given in numeric terms tend to obscure the above points that, in retrospect, seem fairly obvious.

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I like looking at topographical maps. I found it useful to study geography by looking at natural boundaries like watersheds and their divides. High ridges channel water in the valley between them, where civilization lies, and form boundaries between regions.

For example, continental US has a relatively simple topography characterized mainly by the Cascades-Sierras, the Rockies, and the Appalachian. Continental China, on the other hand, is a lot more complicated, unimaginably complicated, in fact, that it is almost incomprehensible when reading the profuse amount of written descriptions that exist. But I haven’t found a satisfactory visualization on a map, which is a shame, so it is time to make one.
(Read the article)

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So finally, the Fed is taking home loans onto its balance sheet, a tool Bernanke proposed years ago to combat deflation. (Interesting, the list of reflationary tools proposed were: drop short-term interest rate, cap long-term rate, buy private debt, buy foreign debt, tax cut, and government purchases; so there are just a few more options left.)

Fed Easing Liquidity in Funding Markets

By Jeannine Aversa, AP Economics Writer

The Fed announced the creation of a new tool, called the Term Securities Lending Facility (TSLF), geared to provide primary dealers — big Wall Street investment firms and banks that trade directly with the Fed — with 28-day loans of Treasury securities, rather than overnight loans. They would pledge other securities — including federal agency residential-mortgage-backed securities, such as those of mortgage giants Fannie Mae and Freddie Mac — as collateral for the loans of Treasury securities. Fed officials said that’s the first time they’ll be accepting mortgage-backed securities through this type of lending program.

Unfortunately, that does tend to make the Fed less credit-worthy, say if the banks were unable to repay their 28-day debts. And since the Fed is where the government keeps its money:

U.S. Treasuries Riskier Than German Debt, Default Swaps Show

By Abigail Moses

March 11 (Bloomberg) — The risk of losses on U.S. Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves, credit-default swaps prices show.

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A hilarious video that slams PC users, Apple, and “unboxing” videos all at the same time.

WHAT?? You can’t take the battery out? What? I do that all the time… Like most users, I switch the battery in and out all the freaking time.

And the comments on Youtube are clearly Mac users parodying themselves, since no one seems to get the joke.

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