Saturday, May 29, 2010

A Series on Rational Thought - Part III

Where does rational thought come from?  Somewhere between ape and man, child and adult, our thinking went from wholly irrational to mostly rationality.  We don't see any other animals exhibit the same ability to grasp the world around them like humans.  Perhaps glimpses, but nothing quite to our scale.

Rational thought had to have been developed.  If anything like language, this was not a biological event, but a cultural one.  Having had two children, I am a first hand witness to the slow growth out of instinctual infancy to the budding rationality of childhood.  Rationality has to be learned.

Rationality is a tool to understand the outside world, which ultimately leads to our desire to satisfy our wants.  Our emotions create these desires, and it is our rationality that allows us to satiate those desires.  That is to say, our emotions tell us that we want the apple, but our rationality tells us how to get it.  At the core, our emotions are driving everything we do.

Wednesday, May 26, 2010

A Series on Rational Thought - Part II

Having concluded that language is the expression and communication of emotion, the total sphere of communication needs to be added to complete this discussion. Verbal (oral and written) communication is only one of the ways that we communicate our emotions. The two other major forms are through music and aesthetics.

Certain music conjures up very similar emotional experiences in us. An ominous song comes across as such to most listeners. Whether there is some objective trait or subjectively created cultural understanding in music that makes it sound dark and ominous we seem to understand the intent for the most part. We match happy lyrics with happy tunes, and angry lyrics to angry tunes. Music is an additional layer of emotional communication. In Celine Dion’s “My Heart Will Go On”, the feelings of longing are significantly heightened by the melody of the music. We like those sounds that resonate with our own feelings and emotions. We like love songs, we like soaring anthems, but we can’t stand a tune that doesn’t match our emotional experiences (She thinks my tractor’s sexy, ugh).

The same goes for aesthetics. An American flag conjures up much more emotion in the patriotic individual than another piece of colored cloth. The image means something more. It is a communication of ideas, and it conjures a whole litany of emotions and memories. A swastika can cause repulsion. A rose can fill us with romance. We have learned that certain images mean more than the photons hitting our retina.

Neither language, music, or aesthetics is rational. It’s all emotional.

A Series on Rational Thought - Part I

In this series I want to display how rational thought is a mirage. How we actually make decisions in mostly rational ways, but not truly. What we believe is decided by those ideas that most fit our emotional needs.

First, let me explore language itself. A baby’s first words usually correlate to its most pressing needs. “Mama”, “Dada” or “my”. It learns to communicate its emotion by use of these first simple words. If it experiences desire for an object, the child says, “my.” If it experiences desire for physical comfort, the child says, “mama.” A child first learns to express themselves, and slowly learns words to describe the emotions they are experiencing.

Later on, the child begins to cross another threshold of language. Children have to learn that other people have emotions and respect those emotions. A child wants a toy and asks, “Can I play with your toy?” In this, the child expresses their own emotion, but they are also communicating to the other child that they realize that the other child may have an emotional attachment to that object (toy) as well. Realizing that the asking child recognizes that the owning child does in deed “own” the object and that the object will be returned allows the owning child to share with more comfort and addresses its emotional connection to the toy.

Of course, children will also learn less admirable uses of language. They will learn how to say things to manipulate and to emotionally injure those around them to achieve their own ends. They recognize the emotional needs of others and exploit that knowledge.

In total, all language is the expression and communication of emotion.

Thursday, May 20, 2010

Why I Don't Believe in the Recovery

I was quite surprised last month by the announcement that 290K jobs had been added over the last month.  The number is a little sketchy given that 66K were temporary census hires, but 224K is still a very solid number.  The problem I have with this number is two fold.

1) The ADP employment number usually tracks well with the BLS report.  Scott Grannis has a nice chart:

Strangely, though, the gap last month between the BLS and the ADP grew wider than anything visible in this chart (last month is not shown).  ADP showed 32K jobs, and the BLS showed 290K.  That's a 260K gap.
2) The weekly initial jobless claims numbers just aren't revealing much growth.  During the last few years before this recession, weekly initial jobless claims ran in the 300-340K range.  Now, we are hovering in the 460K range.  We need a 140K average drop to be at a "normal" rate of layoffs.  Chart from Bloomberg below.

Wednesday, May 19, 2010

Obama's Poll Numbers Tanking Again

When the poll analysts for the Democrats claimed that passing the Health Care expansion would help them in November I thought they were crazy. Well, I was wrong, and they were mostly wrong. Right after the Health bill passed, support amongst Democrats increased. Support amongst Republicans went nowhere. However, that boost that Obama received for a few weeks seems to have evaporated in recent days. The Rasmussen Presidential Index shows a rapidly widening gap between strongly disapprove and strongly approve. My guess for the drop off in strong support is due in part to both the BP oil fiasco in the Gulf of Mexico and the turbelent economic conditions of the last couple weeks.

Thursday, May 13, 2010

Funny Math with Unemployment

Weekly initial jobless claims came out this morning.  According to the title of Foxnews article: on May 13th:

Weekly Jobless Claims Drop 4,000 to 444,000

Interestingly enough, I found another Foxnews article issued on May 6th detailing last week's initial jobless claims with this title:

New Weekly Jobless Claims drop 7,000 to 444,000

This is not a misprint.  Foxnews has the numbers right as reported by the government.
Given this math, I want to make a bold prediction.  Jobless claims will continue to drop throughout the year, and could reach as low as 444,000 by Christmas.

Wednesday, May 12, 2010

California is a Worse Credit Risk than Iraq

According to CMA Datavision today:

California's Cumulative Probability of Default now surpasses Iraq's.  You know, that country with questionable elections and frequent mass fatality bombings.

Sunday, May 9, 2010

Following the Greek Crisis

Here are a few links to help you follow the Greek Crisis:

To see what the market thinks of Greece's ability to pay back it's loans, you can use the change in interest rates on Greek governments bonds.  If you look at the chart, it's bad news.  All from Bloomberg:

Two-year bonds
Five-year bonds
Ten-year bonds

To check on "contagion", the only free site that I have found that follows government bonds worldwide is CMA Datavision.  At this link there are three lists.  The 1st list is comprised of countries with the highest probability of default.  The 2nd group is comprised of countries whose CDS spread (a measure of the probability of default and bankruptcy) are shrinking.  This is good for those countries.  The 3rd group is comporised of countries whose CDS spreads are increasing.  This is bad.  Unfortunately, it doesn't give history or list every country every time it is updated (I think twice a day).

CMA Datavision, Sovereign Debt Credit Spreads

Bloomberg lists the rates for a few major countries around the world, but it leaves much to be desired.  That link is here:

Gilts, Bunds, and other Government Bond rates

To see the effects in the United States, you can check out a few links as well.  The market price of risk is the VIX.  Traditionally, the VIX runs about 15-20 in a calm market.  On Friday, May 7th, the VIX hit 40, which is not good.  It hit 80 back in the 2008 panic.  It will soar during a market panic, and is a good indicator as to the nervousness of professional traders.


To see if American banks might be in trouble you can check out the TED spread.  This is a measure of the credit risk seen within American banks.  If banks are going to melt down this measure will spike.  It was running in the teens and has now jumped to 30 bps.  During the last market panic this number his 300, I think, so don't sweat this little jump too much just yet.

TED Spread

For the economy as a whole, I love Consumer Metrics Institute.  They measure internet purchases, which seem to have an uncanny ability to predict future GDP reports.  Right now, their data suggests a double dip recession.  The 2Q GDP report (out August ~25th) may show negative growth.

Consumer Metrics Institute

That's all for now.  If anyone has any good links or a request for a link, let me know.  I have a few more, but I suspect that none of you would want to get that deep into the data.

Thursday, May 6, 2010

I'm Psychic

Back in March of 2009 I said:

U.S. Govt Crowding Out International Borrowing

A while back I brought up the idea that the U.S. government was borrowing so much money that some other governments might begin to have trouble borrowing for their own purposes. The world has a finite amount of cheap capital, and with the amount of money that our government and several others are...borrowing to prop up financial firms and wager on Keynesian stimulus that the supply of those funds might dry up.
Now, the credit spreads for numerous European countries are widening.  The world is running out of money.