Page 2 - The Cranky Finance Prof Spouts Off

The sky is falling! Or, well... bond yields are at any rate. Germany recently issued some 5-year notes at a negative yield, and several other European countries have bonds whose yields are currently negative. See here for some good discussion on why and what it means for financial markets. One very interesting point was made close to the end of the article I linked to: that bond funds (mutual funds that only or largely invest in bonds) will keep buying whatever bonds are available because of the idle cash they have. Legally, at least in the U.S. and Canada, a...

By Jeff Oxman Vote1 0

This is a response to this NPR 'news story' I heard the other day. The gist was that this guy was telling us that Americans aren't saving enough for their retirement. That may or may not be true, it seems like a very personal issue, but I want to address two points here that should concern people like us. My first point is to address savings. I'll take it at face value that Americans aren't saving enough for retirement for this point. Given that I teach finance, I have a fairly good idea of what this means in practice. Say...

By Jeff Oxman Vote8 2

We are all well aware of the extraordinarily high level of the federal debt. It's the highest it's been, as a % of GDP, post-WW2. What may not be as well known is that the Fed's holdings of Treasury debt is at levels not seen ever before, in terms of levels. However, as a percentage of Treasury debt outstanding, the Fed's current holdings are right around 15%. The last time the Fed had persistently high holdings of Treasury debt, it was the 1970s. And we all know how that worked out. The main difference is the height of Treasury...

By Jeff Oxman Vote2 4

Who's working where? Inspired by this post by Robert Murphy on Mises.ca, I put together graphs of employment changes for the states of the U.S. I grouped them by broad region, so some graphs have more states than others. (Click image to enlarge). The first thing we notice is that, except for a few special cases, the employment patterns are pretty consistent for most states during and after the real estate bust. Massive drop-off, and slow climb since. Louisiana had it's own challenges with Hurricane Katrina, clearly. The biggest gainer is, of course, North Dakota. Texas is doing well too,...

By Jeff Oxman Vote0 0

The worst vice is advice, but I can't kick the habit. I had an epiphany today, though, that I think is worth sharing. Whether you are learning gourmet cooking, sculpture, carpentry, metal working, or anything else, there is one common piece of advice I would offer. There might otherwise be commonalities, I don't know. But for sure this one bit is good for anything you might try. My advice is: minimize your loss, given that you are going to try whatever you are going to try. For example, if you are learning to cook, don't go for the most complex...

By Jeff Oxman Vote1 1

We've been living with "big data" for a long time now. "Big data" is essentially a buzzword, along the lines of "sustainable." We should really understand that "big" just means "larger than we have used in the past." Yes, there are storage and architecture costs, but of course there always have been. Arguably, what's made "big data" or the size we're dealing with now is the cheapness of data storage. Walmart and Target wouldn't collect all the data they do if they couldn't store and use it economically. To a financial economist, big data is old news. We can't publish...

By Jeff Oxman Vote3 0

I just thought of a new way of describing us and those like us: liberty entrepreneurs. Every day, we're looking for and developing ways to be more free, and we're helping others to do the same. And Jeffrey Tucker is a perfect example of a liberty entrepreneur. He's an inspiration for me to find ever-increasing ways of living "outside the statist quo" as Mr. Tucker might say. In his guide "Prepare for Life Without the State," Mr. Tucker offers a variety of suggestions for creating a state-free lifestyle. In this post, I'll discuss how Mrs. Cranky Finance Prof and I...

By Jeff Oxman Vote7 2

Should we expect 2% 10-year Treasury yields for the foreseeable future? Here I give some reasons we might think so. First, QE3 ended in October of 2014, but yields have actually gone down a little bit since then. But even though QE has ended, the Fed continues to conduct open market operations, as the open market operations people are reinvesting interest earned on the bond portfolio (the coupons). In the chart below, I show M2 and excess reserves. Excess reserves did drop down towards the end of 2014, but is still very high. M2 is, naturally, at its highest point...

By Jeff Oxman Vote4 0

You have been misled! The VIX is often referred to as a volatility index, or sometimes even a 'fear' index. This implies it is used as a gauge of Mr. Market's perception of the likelihood of a stock market crash. This is not the case, however. First, what is the VIX? Not to get too technical, but first we need a little option pricing tutorial. The price of an option, be it a put or call, is a function of five factors: the price of the underlying asset, the exercise price of the option, the risk-free rate of return, the...

By Jeff Oxman Vote2 2

The honest person is feared by the dishonest person. Those who have gained political power have almost universally done so through dishonest means, and maintain it thus. The honest person holds her personal integrity as the single inviolable feature of herself. This is a person who remains incorruptible and is therefore not understood by the dishonest. The dishonest seek to control and exert power over others, to protect themselves and enrich their own material wealth; perhaps simply because the dishonest desire power over others. The honest person is immune to the dishonest person's entreaties, and will not be swayed under...

By Jeff Oxman Vote1 0

The Cranky Finance Prof Spouts Off

Negative Yields and The ZLB Mar 3, 2015

On Retirement Saving Feb 26, 2015

Will it be the 1970s Stagflation Again? Feb 23, 2015

Employment Patterns Among the States Feb 4, 2015

#1 Advice to Amateurs of Anything Jan 20, 2015

“Big Data,” Financial Theory, and Sunspots Jan 17, 2015

On The Tuckerian Lifestyle Jan 12, 2015

Persistent Low Returns – The New Normal? Jan 12, 2015

Does a Low VIX Tell Us Anything About a Market Crash? Dec 18, 2014

Why Honesty is Dangerous Dec 16, 2014