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Kit Juckes
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A change of plan? Random thoughts prompted by Tony Yates.
Tony Yates wrote a post on his blog on Friday-  Balance sheet shrinkage: so soon?   - asking why the Fed is considering reducing the size of its balance sheet, while interest rates are still very low. People who spend their days staring at screens and messi...
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Ben Bernanke and the case for lower for even longer
Michael Kiley and John Roberts, two Federal reserve economists,  have produced a beautiful paper on Monetary policy in a low-interest rate world  which in turn prompted ex Fed Chairman (and easy policy champion par excellence) Ben Bernanke to write not one ...
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The rise and rise of debt, correlation and commotion
The rise and rise of debt, correlation and commotion Trilemma/dilemma  +  The Second Machine Age  +  Financial Sector Drag vs Secular Stagnation  = https://www.bis.org/speeches/sp170307_slides.pdf If economics is perceived as a dismal science then the onus ...
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Meetings - why do we have  to have the stupid things given that they are almost universally perceived as one of the banes of working life?  The best article I've read about meetings was by written by Antony Jay for the Harvard Business Review in 1976  https...
Mardle Capital
Mardle Capital
mardlecapital.blogspot.co.uk
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Debt will be the death of us
As investment bank research teams ponder how much to charge for their insights, they could do worse than check out what is available for free, particularly from the growing band of central bank blogs of which the BIS' is still probably the best. Claudio Bor...
Debt will be the death of us
Debt will be the death of us
mardlecapital.blogspot.co.uk
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Simon Wren-Lewis wrote about the reporting of market up and downs last week https://mainlymacro.blogspot.co.uk/2016/12/the-reporting-of-market-ups-and-downs.html

He used to tell students that they could become City economists who comment on moves in the foreign exchange market , by telling people that the move was down to ‘fundamentals’ when the market move and the fundamentals agreed, and it was because of ‘expectations’ when the two are inconsistent. Professor Wren-Lewis says academics would be hopeless talking about markets in this way because they either wouldn’t have noticed short-term moves, or because they would admit that they had no clue what caused them in the first place. Not interesting enough. Enter the city scribbler, paid to tell stories which appeal to the press, or to people who want a story to justify investing their money.

The serious point was that City economists are taken too seriously, regarded by some policymakers as high priests to the fickle god of the market and it would be a good thing to insist on some honesty. Every time I turn up on a radio or TV programme I should preface my wittering with the observation ‘gosh, I haven’t a clue, but I suspect...’ or some such waffle.

He is, of course, right. But equally, I'm not sure that's the point.

I thought briefly of Professor Wren-Lewis as I drove to Oxford this weekend, and the BBC aired an interview of erstwhile England football manager Roy Hodgson. He lost his job after England lost a game of football to Iceland in the European championships - a game they should have won (apparently).

Mr Hodgson was asked if he had ever re-watched the tragic game and he said he hadn't. He observed that re-watching games is never the same as watching them first time round. The games that are dreadful 'live' aren't that bad later and the ones which are brilliant are actually full of mistakes you had brushed over.

Is this cognitive dissonance? Or more prosaically, selective memory? Either way, it's human nature and it's also what the football 'expert' does when discussing a game after the event. Just as the economist explains what happened with a narrative that suits the facts, so the football pundit explains why the side that won did so without saying anything as mundane as 'the ball fell kindly for the centre forward who flukily scored but it could have gone either way'. No, the expert must make the facts fit the narrative, because it makes a more interesting story and more importantly, because it helps paint a picture about what will happen in the future.

There is now a fair amount of analysis available explaining what it takes to win football matches. Soccernomics , by Simon Kuper and Stefan Szymanski, makes an excellent stocking filler, for example. The very simplified version of a key conclusion (remember, city scribblers skim serious research, and reduce it to an easily chewable narrative, so don’t for heaven’s sake expect me to guide you carefully through this one book let alone the entirety of the literature on the subject) is that teams which spend more on players’ wages have better players and win more often.

Indeed, in the first 150 matches of the 2016/2017 UK Premiership football season, the higher-paid team lost just 34 times, with 38 draws and 78 wins. That’s a decent return for a simple guide, and it’s possible to fine-tune by adjusting for home and away fixtures, injuries, trends (the technical analysis of the sports world) and odd data points such as the inability of some teams to cope with the wide open spaces of their new stadium.

None of this means you can make money systematically betting on football matches, because we all know which sides spend more and they are almost always the favourites to win matches. Nor does it mean that we are always right – after all, 78-150 is barely better than evens if we count draws as a loss.

That doesn't stop the pundit expressing a view ahead of the game, usually justifying why the higher paid team ought to win, occasionally spicing it up by explaining at great length why the underdog may have his day. And it doesn’t stolp pundits explaining at great length after the event why the team which won prevailed, usually with great confidence. Best not, though, put that narrative under a microscope by comparing with a replay of the game. Most individual games are won as a result of a few key moments happening to play out in one way or the other.

The importance of the narrative however, is that over the course of a season (38 games) the better, usually better-paid, teams will have more key events go their way. With a big enough sample, the narrative works even if it falls flat on many single observations.

FX and financial markets are similar. The big difference is that the price of one currency to another already reflects the odds. So whether the dollar is 'better' than the euro can be analysed in depth, but the current price represents, already, the market's judgement of that fact. So in FX we bet on currency movements, and in football you can bet on outcomes, subject to market odds.

In both cases, explaining a single game/day/event is open to the accusation that you are simply making the outcome fit your pet theory. But you're also using that one individual game or day's result to help explain a longer term, more analytical view - whether the dollar is going to be 10% higher or lower in 6 months' time, or whether Arsenal have any chance at all of winning the premiership for the first time in 13 years.

So treat the short-term view, and the backward-looking explanation of the day's events, with a pinch or two of salt, but understand that the purpose is partly to entertain you (I read the sports pages of the paper before I read the market pages) but more importantly to help frame a discussion about which team or currency will win over the season as a whole.
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Immigration, inequality and conceptual art
The Tate has a new exhibition called 'Conceptual Art in Britain 1964-1979' http://www.tate.org.uk/whats-on/tate-britain/exhibition/conceptual-art-britain-1964-1979  if you're interested.  A BBC Radio 4 reviewer explained carefully that conceptual art is all...
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25 multinationals and a big fat deficit
Awful balance of payments data fuel all sorts of responses - the UK doesn't make or export enough, or consumes too much. Is reliant on the kindness of strangers to finance the deficit, (Mark Carney) and is need of foreign direct investment that in turn prob...
25 multinationals and a big fat deficit
25 multinationals and a big fat deficit
mardlecapital.blogspot.com
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A short note on debt and architecture
It's too beautiful to stay indoors but if I write some short notes I'll get back and finish this later....in the meantime, please forgive typos. Way too early to tackle those. There is now growing pressure for restructuring of Greek debt, and from there to ...
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Over 50s, the new thirty-year olds
I've been reading about the "older" (over-50) worker - something I've been for a few years now.  A recent paper by the  Institute of Leadership and Management   which got a fair amount of coverage in the press week starts with the encouraging observation   ...
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