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Wow, HedgeFundGuy is a tough act to follow: best to consider this entry as an amusing, human-interest piece, I think. ;-)

New Year's Eve in Vienna: Michael and Teresa Lots of exciting things have gone on since I wrote Home for the Holidays. In fact, this is my tenth day in Vienna, hanging out with Michael.

The more I travel, the smaller the world seems. Sure, Vienna is not Vancouver. And Vancouver isn't Hong Kong. And Hong Kong is not New York. Yet all these places have so many things in common that they could almost be parallel cities.

While I (still) don't speak a word of German (Yes, HedgeFundGuy predicted this: my German goes nowhere while Michael's English becomes perfect!) I am now into the swing of things, partaking in formerly verboten activities such as drinking coffee, wine and beer on the same day, eating striezel for breakfast, inhaling "heavy" food that can give the top Chinese BBQ restaurants a run for their money when it comes to roast pig, walking, and most of all, going to bed at the time when I used to get up. I could get used to this. In fact, I can't even imagine going back to my former life. Maybe that old cliche is really true: home is where the heart is.

Today, we went for a walk in the neighbourhood that turned into a four-hour sortie. On our end, it's residential, nice and tidy. 90-minutes later, we came upon an alley with a makeshift market three blocks long, just like the ones you find on the sidestreets off Central in Hong Kong. Or it might have been like Canal Street in NYC. What was striking is the fact that in all three places, ethnicity and affluence seems closely tied: the people without money on far end of the street have nothing in common with the ones with lots of it on this end of the street.

Of course, there are good things that defy geography and race: love and kindness is the same no matter what language we speak or what color we are. Mothers are the same all over the planet: ha ha.

The picture above is of us on New Year's Eve in the first district. By midnight it was total chaos, with firecrackers blowing everywhere, exciting and dangerous at the same time. What a feeling of being ALIVE!

Notches on the bedpost I'm hoping to explore this great city a lot more, but I have some work to do while Michael completes his thesis over the next week or so. Happy New Year and may 2007 be the best one ever!

I found a mysterious piece of paper (diagram to your right) today. As we all know, guys are notorious for being tight-lipped around women, especially when it comes to what they are thinking. They do not wax poetic; they are also economical with words. And when the guy happens to be a math whiz, well, you know the drill: he keeps score. But when the math whiz is also an econometrician, strange notations appear as part of the analysis...

scalefreenw
In 1949, Hayek attributed the dominant position of planning in the West to the role of intellectuals, by which he meant 'professional second-hand dealers in ideas' such as journalists and commentators. Later in the twentieth century, we saw a similar phenomenon: particular social ideas, although frequently falsified empirically, have come to dominate through the efforts of intellectuals. This paper (7 pages) addresses how a small minority can set so decisively the terms of the debate. Hayek conjectured that this was the case, but did not specify the mechanism by which this can occur. Recent advances in network theory about how ideas can either spread across, or disappear in, a social network of individuals can explain this phenomenon. The implication of Hayek's insight, validated by modern network theory, is that think tanks should seek to influence 'professional second-hand dealers in ideas' rather than adopt the naïve democratic principle of trying to persuade individual voters.

I've just returned from a fabulous week in London! One of the highlights was meeting Abiola Lapite who blogs at Foreign Dispatches. His mind works so fast that even the preflash can't fool him:
michabiol

The WSJ today notes that a 2003 party for a onetime major trader for Fidelity is the subject of a major NASD and SEC investigation. Given the descriptions and my experience with such outings (as an observer), it seems very plausible that illegal drugs and prostitutes were involved in a recreational fashion by some guests, but I somehow do not think this is a wise focus for our securities regulators. No doubt it is more interesting, especially to a young regulator, than the boring issues involved in actual fraud, but it suggests a lack of seriousness. Do they really think these are the most important things?

From the WSJ:
The fun included a stay at the ritzy Delano Hotel for some, a yacht cruise and entertainment by at least one dwarf hired for the occasion.
"Some people are just into lavish dwarf entertainment," says the 4-foot-2 Danny Black, a part-owner in Shortdwarf.com, an outfit that rents dwarfs for parties starting at $149 an hour.
Nothing says “party!” like several well-placed dwarfs, I guess. Too bad they outlawed the ever-popular drunken dwarf tossing in the 1990’s. In any case, this is the ultimate red herring. Given the feted bachelor was a star Fidelity trader and probably oversaw millions in commission allocations to Wall Street, is it any wonder he got tens of thousands of dollars in soft dollar benefits? How does this hurt widows and orphans?

There are many serious regulatory issues on wall Street, such as price manipulation by specialists on the listed exchanges (especially AMEX), or trying to nail the obvious cheaters who run prices up the day before a takeover is announced (why is it so hard to prosecute those guys?), modifying Sarbanes-Oxley to be less costly and more informative, expanding the list of companies that allow the ability to short on downticks. Instead, it’s Dwarfgate.

corpspread
Back on January 19 I noted that High Yield bonds were a rather poor investment historically: on average they generated returns like Treasury bonds, but with twice the risk. I also noted that at that time the spread to Treasuries was below expected loss rates, meaning that a buy-and-hold investor should expect to make a lower return than Treasuries because the expected loss rate (default rate x loss in event of default) was greater than the extra spread.

The graph shows what happened subsequently: the spread wandered a little bit, then jumped smartly around the middle of March. In my opinion this merely takes corporate bonds from being a good short/bad buy, to being a bad buy and a bad short.

hedgfblogpulse

Of course, economists are very adept at noting what stocks were good to buy last year, and I'm no exception, but there's more to this story than hindsight. BlogPulse measures the frequency that certain word combinations are in the blog universe, and there is a high correlation between the blog mentions of “hedge funds” and the Corporate spread (see graph above or hit link here). Most of these blog mentions are in the context of discussions of potential disasters, positive feedback loops, and other financial debacles. This is evidence that hedge funds are generally long credit risk, as hedge funds begin to feel pain when spreads rise, especially when the stock market (the hedge) does not plummet in concert.

Kevin: After a year of my blogging about Wal-Mart on [Always Low Prices], Wal-Mart has had enough. WM has sent its attorneys after me -- to stop me from using their slogan "Always Low Prices", and to scoot me off the alwayslowprices.net domain.

Let me be clear at the outset; there is no scandal here. I am not outraged. This is about business and control of property -- not persecution. Unlike GM, WM did NOT send a goon squad. And though I find many of Wal-Mart's claims spurious, I am not a lawyer, and I will have to consult with my own lawyers before proceeding formally. And though they will tell me to not discuss the matter any further, I think transparency is more important than most lawyers do.

I promise to fight to keep the alwayslowprices.net domain and Always Low Prices name. And I want the blogosphere's help and advice on how to proceed (emphasis mine).

Here is a cropped PDF copy of a letter sent to me by email and snail mail by Wal-Mart's attorneys regarding my use of their "logo". Click here to continue reading.

I've really had a great time co-blogging here at Mahalanobis. I'm very grateful to Michael for inviting me, and giving me blogging fever :)

I've decided to branch out, and have started a new blog, The Raw Prawn. I'm joined there by Australian journalist Reena Ganga, a great source of clever and insightful thoughts. The primary topics are economics, business, and international politics, with a view on how the three come together.

Please check it out, and comment away. I love hearing people's thoughts about these topics, and I also appreciate any advice and suggestions for a new blogger.

And yes, I will still post periodically at Mahalanobis, so you're not rid of me yet :P

Our latest acquisition, Adam Crouch, has studied Economics at Cornell University and is currently an analyst doing business strategy work at a Major Financial Corporation™. He is particularly interested in how economics and politics affect the business climate in different countries; much of his knowledge stems from spending 10 years doing Model UN, and his travels in the developing world, where he spent a great deal of time trying to understand the unique challenges local businesses face.

Welcome On Board!


I am guest-blogging this week on Marginal Revolution, the best economics blog on the web. Don't expect any posts on Mahalanobis until next week, I am busy smoking cigars and drinking champagne!

margmahala

SCHREINER, Frank
After a hearty laugh, the man who many know as the porch philosopher died Tuesday August 10, 2004 at the age of 53 years with his wife Pamela by his side. He was father of Emil and Stephanie, loving son of Helen, brother of Rudy (Marianne), friend of many and professor at Heritage College. Also survived by many aunts, uncles, nieces and nephews <>.
sarg01