Here at i2pi, we feel a strong brotherhood with all things pie, as demonstrated in the image below*:

And as statistics & visualization junkies, we think we have found the only good use for a pie chart:

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*: Vegemite & Lentil pie!

I don't get it.

I don't understand why we are getting into such a fuss attempting to stop the decline in stock prices. If a company defaults on its debt then the equity holders get nothing. That's just how it works. The likelihood of default is reflected in corporate bond rates and CDS spreads. As those spreads widen, we see that the market believes in a greater chance for default, therefore the value of the equity declines. Whether they are right or wrong is another thing, but markets are supposed to reflect beliefs. Facts are for the future to reveal.

As far as I can tell there are no great operational reasons why a company would care about the current value of its equity. Yes, if they are trying to make purchases with equity, it could be a problem, but that's not at play right now. Yes, companies have a duty to their shareholders, both internal and external. But if the external market believes something that isn't shared by insiders you shouldn't be taking aim at changing the mechanism for reflecting beliefs. That's nothing more than shooting the messenger.

If you make the argument that insiders care about stock prices because of options and the effect on morale, then you have a bigger problem. If insiders honestly worry about what management considers a temporary misplaced belief, then clearly the insiders don't hold those same beliefs. And maybe then facts are actually closer to what the external market is reflecting. This would mean that the mecahism is working, and shooting the messanger would be trying to shoot the future.

:wq

Now I don't know how many of you have watched Bloomberg TV in the evening, but without the distraction of an active trading session the channel feels much more like a low-rent community college broadcast. All that was missing was a potted plant and an American flag.

Instead they had Arthur Laffer.

He was making the argument that the Fed should have cut yesterday and the basis of his argument was something along the lines of, well if we bail out 100% of GDP we will be no better off than if we bail out 0% of GDP. I didn't quite follow his line of reasoning, but it was an all too familiar approach to me.

At least in the words of my favourite motivational speaker de jour, Tim Gunn, if you only have one trick up your sleeve you had better 'Make It Work.'

:wq

This morning I came across an interesting paper that demonstrated a leading relationship between a basket of currencies and the IMF commodity price index:

Using data obtained over the past one to three decades for Australia, Canada, Chile, New Zealand, and South Africa - all small commodity exporters with market-based floating exchange rates - we find that their currencies embody remarkable forecasting power for future global commodity price movements. Individually, these exchange rates can forecast the prices of their country's major commodity exports, and together, they do an excellent good job at predicting aggregate commodity market movements.

[snip]

This forecasting success of commodity currencies is no deus ex machina but has a sound and intuitive economic basis. It follows naturally from the fact that exchange rates are asset prices that embody expectations of future movements in macroeconomic fundamentals, specifically ones that will directly affect the exchange rates. For commodity currencies, global commodity prices matter to their exchange rate values.

Inspired, I bounded out of bed and decided to pretend to be an economist this morning. Without reading the paper, I grabbed what data I could and put together a simple vector autoregressive model. I couldn't find data for the Chilean Peso, or at least my data set suggests that it was, up until recently, pegged to the USD, so I worked with only the AUD, CAD, NZD and ZAR. Even so, as my pretty picture above shows - the model is pretty spiffy.The chart shows the out-of-sample 1 month ahead prediction. Overall the model gets me an R-squared of 0.85.

Neat.

Now onto real work for the rest of the day.

:wq

Hey, you, meet you

Nearly seven years after Osama Bin Laden disappeared, US intelligence agencies are still chasing his shadow. And shadows are precisely what they should be looking for, says NASA's Jet Propulsion Laboratory in Pasadena, California.

By analysing the movements of human shadows in aerial and satellite footage, JPL engineer Adrian Stoica says it should be possible to identify people from the way they walk - a technique called gait analysis, whose power lies in the fact that a person's walking style is very hard to disguise.

...

The results showed that the appropriately trained sexologists were able to correctly infer vaginal orgasm through watching the way the women walked over 80 percent of the time. Further analysis revealed that the sum of stride length and vertebral rotation was greater for the vaginally orgasmic women. "This could reflect the free, unblocked energetic flow from the legs through the pelvis to the spine," the authors note.

There are several plausible explanations for the results shown by this study. One possibility is that a woman's anatomical features may predispose her to greater or lesser tendency to experience vaginal orgasm. According to Brody, "Blocked pelvic muscles, which might be associated with psychosexual impairments, could both impair vaginal orgasmic response and gait." In addition, vaginally orgasmic women may feel more confident about their sexuality, which might be reflected in their gait. "Such confidence might also be related to the relationship(s) that a woman has had, given the finding that specifically penile-vaginal orgasm is associated with indices of better relationship quality," the authors state. Research has linked vaginal orgasm to better mental health.

...

Extending the idea to satellites could prove trickier, though. Space imaging expert Bhupendra Jasani at King's College London says geostationary satellites simply don't have the resolution to provide useful detail. "I find it hard to believe they could apply this technique from space," he says.

:wq

See here.

Parachute use to prevent death and major trauma related to gravitational challenge: systematic review of randomised controlled trials

Gordon C S Smith, professor1, Jill P Pell, consultant2
1 Department of Obstetrics and Gynaecology, Cambridge University, Cambridge CB2 2QQ, 2 Department of Public Health, Greater Glasgow NHS Board, Glasgow G3 8YU

Abstract

Objectives To determine whether parachutes are effective in preventing major trauma related to gravitational challenge.

Design Systematic review of randomised controlled trials.

Data sources: Medline, Web of Science, Embase, and the Cochrane Library databases; appropriate internet sites and citation lists.

Study selection: Studies showing the effects of using a parachute during free fall.

Main outcome measure Death or major trauma, defined as an injury severity score > 15.

Results We were unable to identify any randomised controlled trials of parachute intervention.

Conclusions As with many interventions intended to prevent ill health, the effectiveness of parachutes has not been subjected to rigorous evaluation by using randomised controlled trials. Advocates of evidence based medicine have criticised the adoption of interventions evaluated by using only observational data. We think that everyone might benefit if the most radical protagonists of evidence based medicine organised and participated in a double blind, randomised, placebo controlled, crossover trial of the parachute.

Hat tip to Overcoming Bias

Just got them back from the 1-hour photo place this afternoon. Took the rest of the afternoon off work, scanned them, and then uploaded them to the Internet website Flickr.

One of the good things about not being able to blog about my work is that I can upload random charts and not have to exert the keyboard bashing required to explain my thoughts.[1]

X axis would be current account balance.[2]
Y axis is loan to deposit ratios for random banks

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[1] Which are largely derived from another happily married Aussie bloke.
[2] Dada thanks to another Aussie bloke.