Tuesday, June 15, 2010

Wow!

Always suspected it, but this 'confirms' it!

From Free Exchange:

Luck”, James Simons, the founder of Renaissance Technologies, a hedge fund, once said, “plays a meaningful role in everyone’s lives.” Mr Simons, a 71-year-old former university professor and a celebrated mathematician, has been blessed with the stuff. His flagship fund, Medallion, has had average annual gains of more than 35% for 20 years. Last year he was named the best-paid hedge-fund manager in America by Alpha, a hedge-fund magazine, reportedly earning $2.5 billion. Medallion gained 80% last year, and this year is up a further 12%.


and,

Where other funds might recruit employees with financial or economic backgrounds and have them test hypotheses against data, Renaissance employeed thinkers who had spent the bulk of their career in non-economic analytical fields, like mathematics, physics, and astronomy. Once at Renaissance, those thinkers would build data-processing models without any preconceptions about what should cause what, when. The firm's advantage is in its willingness to trade what doesn't necessarily make sense.


Read it here: 'If it works, bet it'

Thursday, June 10, 2010

Rodrik on Germany's role in this mess

Rodrik offers an interesting viewpoint on who may also be responsible and who has to act now before it is too late in this crisi.

Just a quote:
European growth is constrained by debt problems and continued concerns about the solvency of Greece and other highly indebted EU members. As the private sector deleverages and attempts to rebuild its balance sheets, consumption and investment demand have collapsed, bringing output down with them. European leaders have so far offered no solution to the growth conundrum other than belt tightening.

The reasoning seems to be that growth requires market confidence, which in turn requires fiscal retrenchment. As Angela Merkel puts it, “growth can’t come at the price of high state budget deficits.”

But trying to redress budget deficits in the midst of a collapse in domestic demand makes problems worse, not better. A shrinking economy makes private and public debt look less sustainable, which does nothing for market confidence.

In fact, it sets in motion a vicious cycle. The poorer an economy’s growth prospects, the larger the fiscal correction and deleveraging needed to convince markets of underlying solvency. But the greater the fiscal correction and private-sector deleveraging, the worse growth prospects become. The best way to get rid of debt (short of default) is to grow out of it.

So Europe needs a short-term growth strategy to supplement its financial-support package and its plans for fiscal consolidation. The greatest obstacle to implementing such a strategy is the EU’s largest economy and its putative leader: Germany.

Even though its fiscal and external accounts are strong, Germany has resisted calls for boosting its domestic demand further. Its fiscal policy has been expansionary, but nowhere near the level of the US. Germany’s structural fiscal deficit has increased by 3.8 percentage points of GDP since 2007, compared to 6.1 percentage points in the US.

What makes this perverse is that Germany runs a huge current-account surplus. Projected to amount to 5.5% of GDP in 2010, this surplus is not far behind China’s 6.2%. So Germany has to thank deficit countries like the US, or Spain and Greece in Europe, for propping up its industries and preventing its unemployment rate from rising further. For a wealthy economy that is supposed to contribute to global economic stability, Germany is not only failing to do its fair share, but is free-riding on other countries’ economies.

It is Germany’s partners in the eurozone, especially badly hit countries like Greece and Spain, that bear the brunt of the costs. These countries’ combined current-account deficit matches Germany’s surplus almost exactly. (The eurozone’s aggregate current account with the rest of the world is balanced.)


Read it here.