A Great Article on Asset Allocation

In today’s Barron’s magazine there is an interview with Dennis Stattman of BlackRock Global Allocation called “Mixing It Up in an Uncertain World”. In this article he discusses his world view and his views on asset allocation. It is a great article and highly recommended.

Dennis starts by explaining that our current situation is odd.

The first thing you have to realize… is that it is an artificial environment because of extraordinary government measures, both on the fiscal and monetary side… but our portfolio strategy has to take into account with what is going on with our unit of account, the US dollar.

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Academic Research on Insider Trading

In today’s Barron’s magazine there is an article titled “Keeping One Step Ahead of the News“. The article summarizes an academic study by Nitesh Sinha (University of Illinois at Chicago). Barron’s tagline was:

A provocative new academic study suggests the government should scrutinize options trading for hints of insider trading. Volume seems to arrive before the news does.

The study took researched how the options market behave before “surprise” news came out. They took two incidents involving Baxter International and Bank of America and showed that option volume increased by a factor of more than 500 prior to the news coming out, which was obviously sign of something interesting occurring (if it can be replicated on a larger scale). Generally the SEC seems to go after stock trading rather than the options market for insider trading, but per the authors there are a lot more ways to trade on information in the options market and it is also easier to “short” bad news (just buy a put) when for the cash market you actually need to “short” the stock which is more complex.

It is important to realize that these sorts of researchers actually DO find major items that the SEC misses from time to time; the “options backdating” scandal (where executives chose the most advantageous day where the price was lowest as the date of issuance for their options) was broken by researchers and not the SEC itself. It will be interesting to see if this study can be extended or similar ones launched and how far these investigations go. Unlike the options dating scandal where the companies themselves were charged in this case if you see an strange event like a bump in trading they would have a lot of work to do in order to determine who profited and why and whether or not it was based on insider information.

Baffled “Experts”

Today’s New York Times had an article titled “Steady Decline in Major Crime Baffles Experts“. The article describes how crime has fallen across the country at a time when the crime “experts” thought it would increase.

There was no immediate consensus to explain the drop. But some experts said the figures collided with theories about correlations between crime, unemployment and the number of people in prison. Take robbery: The nation has endured a devastating economic crisis, but robberies fell 9.5 percent last year, after dropping 8 percent the year before.

Interesting – you can see the key elements of the “expert” model:

1) unemployment
2) number of persons in prison

Not mentioned above but likely another key variable in their model is the number of male individuals in the key age range for committing crimes – I don’t know exactly what that is but I would guess it is something like 18-25.

Throughout the article, as is the norm in the New York Times, there is no mention of ANOTHER key variable that has been added to the equation over the last few decades – gun owner rights. The only time guns come up in the paper is when 1) there is some sort of sensational murder of multiple individuals and they want to blame the type of weapon used 2) someone who clearly should not have a gun like someone who should have been committed to a mental institution uses one to hurt someone.

But while it is not even a variable to consider to these experts OBVIOUSLY gun owner rights deter criminals. The presence of armed civilians who are able to defend their homes and now their persons in most states (only Wisconsin and Illinois have no form of concealed carry) is a form of deterrence that criminals would be aware of, since it is a factor for THEM to consider on the types of crimes that they commit. For example anyone doing home invasions in Texas would have to be insane; you’d need to be armed to the teeth and willing to kill the home owner in cold blood and face a death sentence for the chance to walk away with some home electronics?

The saddest part for me is that either all of their journalists have been actively trained NEVER to mention guns as a source of positive outcomes or, more likely, the journalists are all selected from the same pool of people that actually THINK that way. Certainly if you went to a private school out east somewhere or were educated in England it would never occur to you that guns could impact crime favorably, because these sorts of stories never occur in print.

When I am overseas I have fun talking to people about Indiana, a state bordering Chicago which is actually part of the metropolitan area, where you should assume that many people have concealed carry and the background checks are reasonable and yet it isn’t the “wild west” at all. They really don’t believe me, and part of it is that those stories just aren’t told. Of course they don’t even know that they are in a concealed carry state unless someone tells them. And from their perspective, the most dangerous places to be are those that have the MOST RESTRICTIVE gun laws, which also seems counter-intuitive to them but since no one explains this in more depth they just drop it and assume Americans are “gun crazy”.

I don’t mind newspapers having an opinion, even an opinion that I disagree with. What irks me is the fact that I genuinely believe that they have ruled out guns having a positive impact in all scenarios without questioning that belief and frankly it is sad. Whether it is stated policy or just something that comes with hiring the staff it is a clear fact.

Cross posted at LITGM

St Pancras London

Recently on Chicago Boyz I saw a post about the re-opening of St. Pancras railway station in London. I was in London recently and was very impressed with the size and scale of the building as well as the renovation.

Upper left – patrons the bar in the train station. Upper right – the lights in the high vaulted ceiling. Lower left – the Eurostar train station connecting to Europe. Lower middle – the eerie faux-reflection in the glasses on the base of the statue in the station. Lower bottom – the view of the station from the side.

Highly recommended to walk through it if you are in London.

Cross posted at LITGM

Illinois Governor Quinn Denies Realities on Guns

Recently I saw this ad at a Chicago train subway line and of course the answer is… yes. Unfortunately Illinois governor Quinn, who barely won the Democratic primary and barely won the general election, views his mandate as unstoppable and refuses to recognize this reality.

In this article from the Chicago Tribune, Quinn says he will oppose concealed carry, making Illinois 1 of only 2 states that have no form of this in the United States.

“The concept of concealed, loaded hand guns in the possession of private citizens does not enhance public safety, on the contrary it increases danger for everyday people as they go about their lives,” Quinn said.

It is immensely frustrating that a governor whose largest city leads in the nation in absolute number of murders (even though we are third in population) can’t see that strict gun laws do nothing to deter criminals.

The state of Indiana, right next door to Chicago, in fact part of the metropolitan area, has a very flexible concealed carry law and they don’t see that public safety is diminished.

It is hopeful that the downstate Democrats that support responsible firearms laws (by responsible meaning allowing responsible citizens to have firearms, rather than just criminals) will join with Republicans in passing this law. Quinn has proved to be a doctrinaire “classic” liberal Democrat, banning death row (I guess he would have rather had Gacy live out his life on the public’s dime the same way Speck did), raising taxes 67% and siding with unions at every turn. Literally I cannot think of a single thing that Quinn has done that hasn’t been straight out of the most liberal playbook, even though Illinois is a moderate state.

Cross posted at LITGM