What I Learned Today
a curious girl in a curious world..
March 25, 2008
We will never be able to anticipate all discontinuities in financial markets. Discontinuities are, of necessity, a surprise. Anticipated events are arbitraged away.
—Alan Greenspan in this FT article. A lot went down while I was gone.
March 24, 2008
Back! Chile was great, though a business inspired group trip does not allow for visiting everything I would have liked to. While I learned quite a bit in Chile, I found it most interesting that every single person with whom I spoke referred to the devaluation of the dollar. The bus driver, the hotel porter, the frutas y verduras vendor in the mercado.
March 14, 2008
On a Personal Note.. I leave for Chile today. Last time I visited South America it was bad news (civil unrest, mugged, assaulted). Hoping Round 2 is a bit less memorable. Back in a week!
March 13, 2008
Who the candidates are turning to for advice about the biggest issue in this presidential campaign: the economy..
McCain: Douglas Holtz-Eakin - former director of the Congressional Budget Office and former chief economist on President Bush’s Council of Economic Advisers
Clinton: Gene Sperling - national economic adviser to President Bill Clinton and is currently senior fellow at the Center for American Progress. Also consultant and writer for “The West Wing.”
Obama: Austan Goolsbee - 38 year-old University of Chicago economics professor and member of the panel of economists that advises the Congressional Budget Office.
March 12, 2008
DJIA Part Deux
The Editor & Executive Director of the Dow Jones Indexes took issue with my opinions and assertions (& my incorrect index creation date..) in my recent post about the Dow Jones Industrial Average. They’ve asked that I share their point of view…
In reference to your blog on the Dow Jones Industrial Average, we’d like to correct a couple of things and comment on others.
The DJIA was created in 1896, not 1882 (which is when Dow Jones & Co. was formed). Charles Dow created his original index of 11 stocks in 1884, and almost all of them were railroads. General Electric was not among those 11 because it was formed by Thomas Edison in 1890. The DJIA was formed with 12 stocks, of which GE was one. It is in the index today, nearly 112 years later, though it was taken out and put back in twice at the turn of the 20th century.
Changes are not made “fairly often” in the DJIA, unless you think one every two years (the average since World War II) is often. In fact, we make changes as seldom as we possibly can – certainly fewer than most other indexes. We take some pride in the fact that The Dow was the only brand-name market index to trace the entire bear market earlier this decade with exactly the same stocks from beginning to end. By contrast, the S&P 500 had 109 component changes from its peak on March 24, 2000, to the trough on October 9, 2002.
We don’t “concoct” the DJIA’s divisor as you state (concoct having the connotation of being made up). We calculate the divisor, whose job it is to prevent changes in components or stock splits from disrupting the continuity of the DJIA.
Finally, your dismissal of the DJIA (“may not be a great indicator for overall market behavior”) and assertion that the S&P 500 is much better (presumably because it has 470 more stocks) is wide off the mark. Since World War II, the DJIA and S&P 500 have a correlation of 0.95, with 1 being perfectly correlated. What this means is that the DJIA and S&P 500 are telling the same story about the stock market over time. What more do you want?
- Editor & Executive Director, Dow Jones Indexes
Naturally, I asked him for an internship.
March 10, 2008
Even The Sartorialist is talking about this picture of a man running from tear gas in Islamabad from the NYTimes (Update: he has since removed it).
While I find the photograph phenomenal, I find the comments rather disconcerting: “that’s a great post…he really looks cool :)” regarding a man running from tear gas under the tyranny in Pakistan.
"No man's life, liberty, or property is safe while Congress is in session." (Mark Twain, 1866)
What do ethanol and the subprime mortgage meltdown have in common? Each is a good reminder of that most powerful of unwritten decrees, the Law of Unintended Consequences - and of the all-too-frequent tendency of solutions imposed by the state to exacerbate the harms they were meant to solve.
The linked op-ed discusses how the subprime crisis stems from the Community Reinvestment Act of 1977 under which banks were graded on their attractiveness to the “credit needs” of “low and moderate income neighborhoods.” The higher the rating, the more lenient the regulations for opening a new branch or undertaking an acquisition. This pressured banks to make increasingly risky home-loans to borrowers with poor credit who typically would not meet the proper credit requirements, aka subprime borrowers.