storefront.midtown

The emptiness began for me, as I think it does for most of us, with the visual. Where I live, in Murray Hill, stores on Third Avenue became bare windows overnight. You walked below 34th and... wait, wasn't there a store over here? The owner had just shut it down and was standing on the sidewalk looking at it. He saw me staring, processing the void. "Wanna see?" he asked. Stripped walls, wiring hanging like the Gorgon's hair from the ceiling. That's when the smell of the recession kicked in: old plaster dust first, then concrete (Gaultier's Puissance Deux without the vanilla). Then emptiness: the absence of people, of circulated air, of the layers of plastic, fiberboard and carpeting with which we surround ourselves.

Text from Eau de Woe: What does the recessions smell like? by Chandler Burr in the latest New York Times T Magazine (which is poorly indexed and barely searchable -- please pardon the absence of a permalink). Image from Midtown Manhattan not too long ago, a storefront that has stood empty for several months now.

holga.

the candyman can

Cadbury reported a 30 percent rise in profits for 2008 while Nestle’s profits grew by 10.9 percent, according to public filings. Hershey, which struggled for much of 2008, saw profits jump by 8.5 percent in the fourth quarter.

From When Economy Sours, Tootsie Rolls Soothe Souls in yesterday's New York Times.

According to the Times, the same was true during the Depression: "Snickers started in 1930. Tootsie Pops appeared in 1931. Mars bars with almonds and Three Musketeers bars followed in 1932."

how the Gaussian Copula Function is to Mr. Li as the Cow is to Mrs. O'Leary

OK, I was reading some papers yesterday on the financial markets and came across the story of the day. This is so cool that I can’t believe it has not been picked up by Fox News (or maybe it has; I guess I should start watching Fox News).

It appears that much of the fault in the financial (particularly the bond markets) may be traced to the misuse of the so called Gaussian Copula Function. I just have to say, that is the coolest name for a harbinger of doom that I have ever heard! It’s so cool, I don’t even want to refer to it as the GCF – I just like typing it too much. It sounds like something from the new Star Trek series.

Gaussian = Distribution of events in a bell shaped curve.

Copula = General way of formulating a multi-variate distribution in such a way that general types of dependences can be represented.

Gaussian + Copula + Function = An untested theory allowing the conversion of power from dilithium crystals to be use to power a seized Romulan warship. i.e. “Captain, I can try to pass the power from our dilithium crystals through a Gaussian Copula Function to get enough power to make warp speed; but it’s never been done before!”

In reality, it’s a mathematical model that attempts to make sense of many disparate factors and calculate uncertainty so a decision can be made on risk (and therefore maximize return) – i.e. if the Gaussian Copula Function produces a number below the risk adjusted rate of return, take the investment; if it’s above, pass on the investment. OK, I’m neither a bond trader nor a mathematician, so I don’t know if I have the details right in the above; but that’s part of the intrigue.

Many bond traders and their managers are not mathematicians either. So it turns out that a really smart guy; let’s call him Mr. Li (mostly because that’s his name), came up with this formula. Like many theories, it does not work in all cases. But the bond guys ignored that fact; or they liked saying the name so much they couldn’t stop themselves from using it (it’s like the name Boutros Boutros Ghali, it’s so much fun to say that news guys were creating stories just to say his name). Turns out, the bond guys didn’t understand the formula or the application either, and so they made complex bets that had their basis in equal parts science, fantasy, and luck.

Even Mr. Li said of the formula “The most dangerous part is when people believe everything coming out of it”. Ain’t that the truth?

I challenge each of you to casually throw into party talk the phrase “Gaussian Copula Function” at least 3 times per week. I’d like to see if it will catch on.

Email from the BHOTW, the man whose keen eye brought you the cheddar menace.

mind map

“Coupons” up 161%
“Unemployment” up 206%
“Discount” up 26%
“Mortgage” up 72%
“Bankruptcy” up 156%
“Foreclosure” up 67%
“Unemployment Benefits” up 247%

Year over Year growth in Search Terms related to the Economic Downturn, December 2007 vs. December 2008.

Via: comScore

speaking of coins

You can't just say, 'I have a model for tremors that works great, I just can't explain earthquakes.'

Harvard economist Kenneth Rogoff, speaking of the crisis of faith that's rumbling through the academic economics community as a result of their general failure to see the financial crisis coming, in Paradigm Lost in the 21 December issue of the Boston Globe.

In the same piece Justin Wolfers of the University of Pennsylvania, "describes these intellectually challenging but less policy-relevant questions" that have occupied the academic community since the 1980s, "as a sort of scholarly 'luxury good.' 'During good times we all consume more luxuries,' he says, 'but during a bad economy, it feels to macroeconomists that what we should be doing is stuff to help today.'"

The Globe continues: "Some economists have suggested that this focus may account for why so many failed to see the warning signs of the financial crisis, and to predict the size and scope of its fallout."


Update: Krugman links to a few who had an inkling »

the poor getting poorer index

So we at breakingviews.com developed the Poor Getting Poorer Index — a basket of 22 equal-weighted stocks that includes the retailers, white-label manufacturers, repossession agencies, dollar stores, pawnshops and other public companies poised to capitalize on rising poverty. This year the index would have generated a positive return of about 9 percent, easily outperforming the 40 percent decline of the Standard & Poor’s 500-stock index.

The Beneficiaries of the Downturn in the New York Times

consider the lobster (latest casualty of the financial crisis)

Along the Portland waterfront, seafood shops are selling lobsters for as cheap as $3.89 a pound, which is about the price of bologna at the deli counter.

(...)
The primary factor, a drop-off in demand by penny-pinching diners, has been in place since summer. But a secondary problem recently surfaced: The global banking crisis left Canadian processors short on credit, trapping Maine lobstermen and dealers with too much supply.

From Lobster Prices Plunge in the Washington Times.