{"id":188671,"date":"2010-08-15T22:11:00","date_gmt":"2010-08-16T03:11:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2010\/08\/15\/what-the-hairieriest-saroff-said\/"},"modified":"2010-08-15T22:11:00","modified_gmt":"2010-08-16T03:11:00","slug":"what-the-hairieriest-saroff-said","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2010\/08\/15\/what-the-hairieriest-saroff-said\/","title":{"rendered":"What the Hairieriest Saroff Said"},"content":{"rendered":"

On my brother’s all too infrequently updated blog, Stephen pointed out two articles that indicate why economics is called the “dismal science<\/a>.”<\/p>\n

He points to a Wall Street Journal<\/span> article (get it through Google news, or you just get the first 2 ‘graphs) titled Hindenburg Omen Flashes Dread<\/a>, where an obscure mathematical formula has somewhat dubious predictive powers:<\/p>\n

The Omen was present at every market crash since 1987, but has also occurred many other times without an ensuing significant downturn. Market analysts said only about 25% of Omen appearances have led to stock-market declines that can be considered crashes.<\/p><\/blockquote>\n

So this doomsday equation has predicted something like 20 of the last 5 crashes<\/span>.<\/p>\n

The problem here is not one of economics, but rather of poor journalism.<\/p>\n

The story is not “Astonishingly accurate algorithm predicts end of the world,” but rather, “Movers and shakers in financial markets spooked by bullsh%$ that is less accurate that checking chicken entrails.”<\/p>\n

The second article, also from the WSJ<\/span> notes that as interest rates hit record lows, companies are making record bond issues<\/a>, particularly of the junk variety.<\/p>\n

Of course if another crash is heading in, those junk bonds will be a bad investment, though if it doesn’t implode, an 8+% premium on government debt is a winner:<\/p>\n

First Data Corp. sold $510 million of 10-year notes this week, at 9.125%, to pay down bank debt due in 2014. Peabody Energy sold $650 million of 6.5%, 10-year notes to pay off the same amount of higher-priced debt due in three years. MultiPlan Inc., a health-care cost-management provider, sold $675 million of notes this week, at 9.875%, to help fund a buyout of the company. Cott Corp., a maker of store-branded soft drinks, sold $375 million of debt at 8.125% to fund its purchase of another company, Cliffstar Corp.<\/p><\/blockquote>\n

But again, this is really not about economics, it’s about finance, greed, and human foibles.<\/p>\n

To the degree that economics apply to finance, it is behavioral economics that applies: In order to understand markets, one needs to understand how they are irrational, which is in the rather quixotic juxtaposition of economics and psychology.<\/p>\n","protected":false},"excerpt":{"rendered":"

On my brother’s all too infrequently updated blog, Stephen pointed out two articles that indicate why economics is called the “dismal science.” He points to a Wall Street Journal article (get it through Google news, or you just get the first 2 ‘graphs) titled Hindenburg Omen Flashes Dread, where an obscure mathematical formula has somewhat …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1004,974,1204,982],"tags":[],"class_list":["post-188671","post","type-post","status-publish","format-standard","hentry","category-finance","category-hack-journalism","category-junk-science","category-stupid"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/188671"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=188671"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/188671\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=188671"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=188671"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=188671"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}