Back from Queensland

Got back last night from our trip to Port Douglas in Northern Queensland with the Snorkparents. Yes, we did see two cassowaries just like these crossing the road in the Daintree National Park. We'd already passed them as they came out of a "concealed driveway" when Snork Maiden spotted the flash of blue color from the corner of her eye. There was lots of other cool stuff. I tried snorkelling for the first time and saw some coral, a fish, a sea cucumber, and a sea slug kind of thing. I found it pretty challenging though. Sooner or later I made some mistake with breathing and had to surface to breath properly. I was managing longer stretches each time so think I need a lot more practice... The others didn't try it or get wet apart from the rain. It rained every day, but then it is a tropical rainforest, even if it was at the beginning of the dry season or end of the rainy season. On the other hand, I felt more comfortable than I ever have in a tropical climate due to the lack of sunshine. At times I even felt a little cold!

Back down south and back to "reality". Another paper I submitted for publication was rejected - par for the course - I still have two out there under review. One referee said they had no idea about the topic, the other said it was great, and the third actually had substantive criticism. So it shouldn't be too much work to get it ready to submit to another journal. OTOH, checking my citations for the week I found I have 8 new articles in the Web of Science citing me for a total of 11 citations. I'm up to about 90 citing articles year to date which is pretty good in my discipline. So getting a paper rejected is less upsetting than it might be if I was a beginning researcher. Of course, when I was a beginning researcher I expected to get rejected and so wasn't so upset by it. If you've ever heard that almost no-one reads any given scientific paper, that is incorrect - the distribution of papers by number of readers and citers is very unequal. Many are never cited and probably little read. Others are very highly cited and read.

Today, I did the "induction course" at my workplace. I did learn some things despite having worked at this university in the past. Some things have changed and some I never knew.

Hedge Fund Returns for April 2009 Begin to Trickle In

The HFRX is reporting a gain of 1.61% for April. Equity market neutral and macro strategies lost money while convertible arbitrage did well. HFRX is based on a sample of 55 funds with a proprietary weighting scheme.

Currency Allocation

Our currency allocation is getting really out of whack as the Australian Dollar rises and Australian shares perform well and we spend USD. We currently have 60% roughly in AUD associated investments and 20% in USD and 20% other. The goal was to be 50:50 exposed to the AUD and other currencies. It makes sense to try to find foreign investments and maybe stop spending USD, but the AUD seems near fair value, so despite the imbalance we won't be selling AUD investments and buying foreign exposed ones yet.

It's the same with our stock exposure. It's way above the long-term target, but with stocks probably still undervalued it doesn't make sense to sell, I think.

April 2009 Moominvalley Report

This month saw one of the largest gains in net worth in dollar terms USD 31,220 (second biggest after April 2008) and was the biggest percentage gain in USD terms (14.31%) since October 2001. Not so spectacular in Australian Dollar terms - a gain of $A26,968 (third biggest after August 2008 and October 2001). Only a 9.22% gain in USD. What happened in October 2001? I quit my job at the university I'm now again working at (well it was the end of my contract but I still got a substantial termination payment). And the stock market was rebounding from the September 2001 low. This time we are also in rebound mode, I got my first pay (2 months worth) for my new job, Snork Maiden got paid 3 times for the month and we got some refunds for trips from her employer (which we make money on effectively). The crisis feeling has certainly relaxed. But at this point in 2001 it looked like the bottom was in the stock market too...

The following is based on the available data as a couple of funds as usual won't report till near the end of the month, when I'll give a final asset class performance report. As usual everything is in US Dollars unless otherwise stated.

The MSCI World Index rose 11.90% in USD terms and the SPX rose 9.57%. We gained 12.33% in USD terms (6.30% in AUD terms). Performance was strongest in private equity (34.66%) followed by US stocks (10.42%) and the Australian Dollar gained. Leverage also helped for a change. Alpha measured against the USD MSCI was 3% with a beta of 1.16 currently. Beta has had some crazy fluctuations through the financial crisis:



We spent $6,153, which is very high. More than $2,000 was on flights for four people and accommodation in Queensland (upcoming trip). Actually, we spent $3,189 from Snork Maiden's U.S. accounts which have been designated for expenses on the Snorkparents visit. No idea what we spent the other $1000 on apart from some restaurant meals in Sydney. So cutting that out, expenditure was pretty normal:



Transfer to super is my after tax contribution to my super account in a bid to get the government's "co-contribution".

As you can see from these accounts our retirement accounts and non-retirement investments gained about the same this month. Net worth reached $233k ($A319k). Asset allocation moved away from our target as Australian stocks gained strongly and the shares of everything else in our portfolio fell:



The main move I made was to reduce hedge fund exposure by selling some shares of Platinum Capital and to consolidate our U.S. brokerage accounts with Interactive Brokers, in the process paying off two small margin loans in Euros and Pounds. So our leverage continued to decline this month. Paying off credit cards also helped. We are now borrowing just 12 cents for each dollar of equity (we hit 38 cents per dollar at the peak) and including borrowings by levered funds we are borrowing 51 cents per dollar of equity. This measure reached 90 cents at the worst point.

Sixteen (or twenty four) Accounts

I'm just checking all our bank accounts, credit cards, and loans at the end of the month to record the data in my monthly accounting exercise and pay any bills that need to be paid. I made a list on my computer to check off against and realised there were sixteen accounts to check. Of course we have more total accounts than that. Actually, another six investment and retirement that don't have cash or debt balances to check and then there is the apartment deposit and the car value. So twenty four accounts in total. And I just closed one this month (TD Ameritrade - I still have a Roth IRA with them).

Don't know if this is a lot. Some bloggers have reported higher numbers...

Moominmama Performance April 2009

Moominmama gained 3.91% for the month. Pretty nice, though not much compared to the MSCI World stock index. Brazilian stocks did very well, unfortunately we only had 0.60% of the portfolio in them. Equities and bonds generally did well and alternatives poorly.

MSCI World Index Up 11.9% for the Month

In USD terms. Currently I have us up 12.65% in USD terms and 6.62% in AUD terms - likely that the final numbers could be slightly higher - Snork Maiden's retirement account has a scheduled outage till Monday morning... Of course we won't have a real final number for April till the end of May when Everest and Man get around to reporting their unit prices for April...

The MSCI is up just 0.07% YTD. Been a bumpy path.

Got Our "Stimulus Payment"!

Checking our bank accounts in preparation for the monthly report I noticed a discrepancy in the numbers and realised that our $A900 stimulus payment arrived today (1 May) from the Australian government. As I explained only Snork Maiden will get a stimulus payment which was reduced to $A900 instead of $A950 following the bargaining process in the Senate.

I Got Paid!

Finally. It's two months worth of pay. I paid off the credit card bill which was around $A3,800. Now we have $A6,000 worth of borrowing capacity there. $A5,000 available on the Australian margin loan, and about $A4,000 in our Australian bank accounts. Of course there is more cash and borrowing capacity in our US accounts. We don't have an emergency fund as such. The goal now will be to build more borrowing capacity again. The money that is in the bank accounts that isn't spent in the next month will be allocated to investment and reducing the margin debt.

One of the things I want to do is take advantage of the Superannuation Co-contribution Scheme. Low income individuals (who get more than 10% of their income from employment or business) are eligible for a government contribution of up to $A1.50 per $A1 contributed from after-tax income to a superannuation (retirement) fund up to a limit of a $A1,500 government contribution. I should qualify for the full co-contribution I think as I'll only be employed for 4 months this tax year (which ends on 30th June).

Target Portfolio and Asset Class Performance: Australian Style

As promised this post looks at the performance of our target portfolio from the perspective of an Australian investor. As I did in a post in December I am representing foreign shares by the MSCI World Index converted into AUD and Australian shares by EWA converted into AUD. The other asset classes are as in the U.S. post but again converted to AUD. However, the managed futures fund and hedge fund index have the exchange rate risk hedged out as is standard for products of this type offered in Australia, but the foreign stocks, bonds, and real estate are not hedged. The target portfolio is modeled as:

EWA: 30%
MSCI: 17%
CREF Bond Fund: 10%
TIAA Real Estate Fund: 10%
Credit Suisse/Tremont Hedge Fund Index (hedged into AUD): 14%
Man AHL Managed Futures (hedged into AUD): 14%
AUD Cash: 5%

Again 20 cents is borrowed (in AUD) for each dollar invested.



The target portfolio performs pretty nicely - it doesn't manage to avoid losses in either bear market but it doesn't suffer a sharp drop in the current bear market, outperforming Australian shares since the market peak. The target portfolio has a mean monthly return of 0.78% and a Sharpe ratio of 0.69 vs. 0.65% and 0.28 for Australian shares. Again, a mix of hedge funds and managed futures would have done even better (ignoring tax implications).

March 2009 Final Performance Report

Now all the unlisted fund returns are in for March I can present the final performance numbers. Australian Large Cap stocks, mainly via the CFS Geared Share Fund, provided the largest returns in dollar and percentage terms.

Our foreign stocks appeared to perform poorly relative to the benchmark indices. But the numbers are confusing because there is an important distinction here between individual stocks and Australian based foreign stock funds. In the former, performance is computed as total return in USD, Euros, or Pounds. I then convert those numbers to Australian Dollars at the end of month exchange rate (and to USD too for the European investments). The effects of changes in the exchange rate on the value of these investments are then included in the foreign exchange item below the subtotal line in the table. The returns on these stocks should be compared with the MSCI in USD terms. By contrast an Australia based managed fund reports monthly returns in Australian Dollars and incorporates any effects of the exchange rate on asset values in that number. Therefore, those funds' returns need to be compared to the MSCI in AUD terms which only rose 0.39% for the month.

Real Estate had a negative impact on returns as did private equity and commodities (Man OM-IP fund).

The rise in the Australian Dollar over the month from 64 U.S. Cents to 69 U.S. cents caused exchange rate losses in AUD terms and exchange rate gains in USD terms. Either way we beat the market though time series estimates of our portfolio beta are around 1.2 so we should expect to outperform a rising market.

Asset Class Performance Through the GFC

This post follows up with the performance in the last 4 month of the asset classes I discussed in the context of endowment style portfolios in December. The chart shows a bunch of funds and indices and a simulation of my current "target portfolio" - the thick brown line - through the end of March. That's not the portfolio I have, which is heavier in stocks and lighter on managed futures but the one I am aspiring to in the next few years. The simulation uses:

47% MSCI World
14% Credit Suisse/Tremont Hedge Fund Index
14% Man AHL Managed Futures
10% TIAA Real Estate
10% TIAA Bond Market
5% AUD Cash

Then a 50% hedge into the Australian Dollar is applied and the portfolio is invested in with 120% of equity (i.e. borrowing an extra 20 cents for each dollar). Returns are in USD terms. The portfolio certainly does not escape the financial crisis and by following the path of the AUD you can see that the hedge into Australian Dollars exacerbates the bad performance.

The portfolio did well in the previous bear market but except for a portfolio constructed of bonds and managed futures this bear market has been too sharp for anything to do well.

The target portfolio has a beta of 0.86 and an annual alpha of 5.66% relative to the MSCI World Index. Not considering tax consequences, you could have constructed a smoother and better performing portfolio from managed futures, hedge funds, and real estate. Or really just managed futures and hedge funds...

Next up, I'll look at the problem from the Australian investor's viewpoint (i.e. in AUD)

You Don't Have to Pay Cash to Save by Paying Cash

A phenomenon we've encountered in Australia but didn't see in the United States is discount department stores that give a lower price if you pay in cash instead of either using a credit card or EFTPOS card. First we came across "The Good Guys" when we were first setting up our apartment in Australia. We didn't end up buying much there, because there cash price was usually no better than Harvey Norman's regular price. Then yesterday we encountered the same thing at "Clive Anthony's" a store I'd never heard of till one popped up recently at DFO in Fyshwick. We had finally decided to buy a Sony music system (like the one above except the wood bits are black). The marked price was $A228 but the guy on the floor said he could give it to us for $208 if we paid cash. We then started discussing with him how we'd have to go to the ATM and withdraw the money from our credit card anyway and I was starting to calculate the fees... I think when he saw a sale possibly slipping away he told us we could have it for $208 even if we paid by credit card!

Now the difference in price in this case can't account for credit card fees or even interest if there is some delay in them getting their money this way (and there are costs to the store in handling cash). And we got the price even when we imposed those costs on the store. So this has to be a method of price discrimination on the assumption that credit card buyers are less price sensitive than cash buyers.

Any other ideas?

Take an Economics Test

U.S. High School "Advanced Placement Economics Test courtesy of the New York Times. I got 18/18 but for a couple of questions that was because I knew all the other answers had to be wrong rather than I knew the one I selected was right. It's all macro-economics questions.

Transferring TD Ameritrade Account to Interactive Brokers

As there is so little in both my US brokerage accounts, I can't see much sense in keeping both open. Though Interactive Brokers charges monthly fees if you don't make sufficient trades their other services are all cheaper and they allow access to markets worldwide. So I've decided to close my Ameritrade account and transfer it into my IB account. I could do this transaction online on Interactive Brokers website.

Sold Some Platinum Capital Shares

I sold some shares in Platinum Capital (PMC.AX) to bring my allocation to the fund back under 5% of net assets and the gross asset allocation to hedge funds back to about 15%. Also the market has risen a lot very fast and it feels good to sell something. I now have $A5,000 of available buying power on my Australian margin loan which feels good too, after all that time in the buffer or getting margin calls.

Monthly Automatic Saving

The table shows our total automatic saving on a monthly basis. Unisuper and PSS(AP) are superannuation funds - the Australian equivalent of US 401k's and 403b's. The employer contributions are 17% and 15.4% of stated wages for Moom and Snork Maiden respectively (The amounts shown are after deducting the 15% contributions tax). In Moom's case the employee contribution of 7% is required, in Snork Maiden's case it is voluntary. We also each have standing orders to put money into accounts at Colonial First State - an Australian mutual fund provider.

Our total joint pre-tax salary including the employer retirement contributions is now $A155,173 or $US111,724. Automatic saving is, therefore, 25.54% of total pre-tax income.

In 2005-06 our income would have put us just on the edge of the top 10% of households. We're clearly in the top 20% but not top 10% currently.

BTW when Moom last worked in Australia in 2001 his salary was $A60,562 and now it is $A61,831. That's not adjusted for inflation.

Hedge Fund Returns for March 2009

Credit Suisse/Tremont have lowered their estimate of hedge fund returns for March to 0.68%. HFRX have not changed their estimate from -0.03%. But the HFRI index is reporting a 1.84% gain for March and the numbers are better than Credit Suisse/Tremont in most fund styles. HFRI is equal weighted while Credit Suisse/Tremont is capitalization weighted. Fixed income and long/short equity did well and short bias (not surprising) and managed futures did poorly.

Investment Choice

In this final post in this series I'm going to look at the investment choice in my super fund. You can either choose a preset mix of asset classes or make your own choice from a short menu. The premixed options have slightly higher percentage management fees but choosing the a la carte option incurs an extra $60 fee per year. I suppose the extra percentage fee is either for rebalancing or for access to the alternative asset class that is not included in the menu. And the property component is a mix of direct property investments and REITS while the a la carte option is REITS only. The "Growth" portfolio costs 0.57% vs. 0.37% for "Australian Shares" and 0.33% for "International Shares".

These are the returns of the different pre-mixed options over the last 5 financial years, the current financial year till the end of December and the current quarter.







Over 5 years till June 2008 the High Growth portfolio has the highest return. Over 7 years though (not shown) the Growth Portfolio had slightly higher returns (7.14%, after tax of course).

The Growth portfolio is invested 32.5% in Australian Shares, 30% in International Shares, 15% in Fixed Interest, 12.5% in Alternative Investments, and 10% in Property. In other words it is a 60/40 portfolio with a diversified 40 component. The High Growth portfolio is invested 40% in Australian Shares, 32.5% in International Shares, 17.5% in Alternative Investments, and 10% in Property. The Balanced portfolio is 30% Fixed Interest, 27.5% Australian Shares, 25% International Shares, 10% Property, and 7.5% Alternatives.

My current target is 28% Australian Shares, 14% International Shares, 10% Bonds, 9% Property, 33% Alternatives, and 6% Cash and Other Assets. But it turns out that Unisuper's alternatives are infrastructure (which I classify as real estate) and private equity. And, in fact, all current alternative investments are infrastructure or timber plantations.

It turns out that the Growth Portfolio is nearest to my target allocation, though it is still further from my target than our current portfolio is. Snork Maiden's superannuation is closer to the target than the current portfolio. Compared to other portfolios I track it is the following "distance" from:

Moom 28%
Moominmama 47%
PSS(AP) 28%
CALPERS 38%
Yale 47%
Harvard 36%
Princeton 51%
Average US Endowment 39%
The Future Fund 28%

Not surprisingly, it's most similar to other Australian funds. It is also a good diversifier relative to Moominmama. It's not possible to get closer to my target using choices from the a la carte menu. So the choice is made.

Defined Benefit vs. Defined Contribution: Analysis

I've run a few different scenarios to work out whether I should go for the defined benefit or defined contribution option.

Scenario 1: Work 1 Year at an Australian University

This is the simplest scenario as the only variable is future rates of return in the defined contribution scheme. I don't need to project my future salary. I assume that the tax on superannuation earnings averages 7.5% (15% on general income, 10% on capital gains, and zero on fully franked dividends). All numbers are in 2009 Australian Dollars. I don't worry about projecting inflation. I am currently 44 years old.

The results of the analysis are also very clear cut. I and my employer would contribute a total after tax amount of $13,262 this year.

Under the defined benefit scheme I would receive $13,603 if I retired at age 60 (the earliest age I could access the benefits) and $14,221 if I retired at 65 or older. Clearly this rate of return is very low. A 1% real rate of return gives a lump sum of $15,450 at age 60 and $16,181 at age 65 in the defined contribution scheme. A 5% real rate of return gives $28,460 at age 60.

Selecting this option only makes sense in this scenario if you are extremely averse to market risk. Unless you expect hyperinflation and negative real interest rates in the future it will make more sense to invest in the cash option in the defined contribution scheme.

Scenario 2: Work Till Age 60 at Current Salary

Under this scenario total contributions are $225k and the age 60 defined benefit is $231k. Again, a 1% real rate of return beats the defined benefit.

Scenario 3: Smooth Rise in Salary to Full Professor (E1) at age 60

An E1 Professor currently earns $133,901. This scenario is not clear cut. The defined benefit is $505k if taken at age 65 but actually quitting at 60. A 3% real rate of return gives $508k. Continuing to work at that salary till age 65 favors the defined benefit a little bit more.

Scenario 4: Switch to Full Time Next Year and Then Smooth Rise to E1

Now the age 65 defined benefit (working till 60) is $513k and a 2% rate of return gives $516k.

Scenario 5: Switch to Full Time Next Year and Fast Promotion to E1

I assume I rise one salary notch every two years. I become a full professor in ten years. Defined Benefit is $523k at age 65 and the 2% rate of return yields $535k.

As you can see, the earlier promotion comes or if promotion doesn't come at all the lower the require rate of return in the defined contribution scheme. I reckon scenarios 1 and 5 are most likely. I'd assign them a 40% probability each and the other 3 scenarios (20/3)% each. The expected value of the defined benefit is then $299k of a 1% real rate of return defined contribution it is $273k, at a 2% real rate of return $309k , at a 3% rate of return $350k.

Using expected value assumes I am risk neutral. If I am averse to career risk then I should put a heavier weight on Scenarios 1 and 2 than on the more positive career scenarios. Those scenarios have lower required investment rates of return.

Given this low required rate of return and the advantage of portability I am going to choose the defined contribution scheme.

Defined Benefit vs. Defined Contribution

The major decision I need to make in response to receiving my job contract is which type of superannuation (retirement) scheme to join. Yes, we have a choice between defined benefit and defined contribution (or accumulation in the Australian jargon). Defined benefit is mainly based on your average salary in the last three years that you work for a university that is a member of the Unisuper fund (indexed for inflation) and the number of years that you contribute to the fund. So here the main risk is career risk. This option performs best for someone who will work their whole career at Australian Universities and get promoted to professor or dean right at the end of their career. In defined contribution you have both a career and a market risk but much more of a market risk. An important benefit of the defined contribution is that you can rollover your benefit into another superannuation fund - i.e. it is portable - while the defined benefit is not.

When I previously worked at an Australian university we initially had no choice and were all in a defined benefit scheme. Then when we were given the choice of switching to defined contribution I did it immediately as I didn't expect to stay in the Australian university system in the long-term. After I left the university I rolled my super into Colonial First State. That was all going well until some unfortunate investment decisions last year.

Given my great career uncertainty at this point it seems obvious to go for the defined contribution scheme. But I will do a proper analysis and report back with the results.

The Unisuper scheme has, on top of a massive 17% employer contribution, a required 7% contribution from the employee's nominal salary. To balance things out, and given our higher income now, I will start 7% "salary sacrificing" (pre-tax employee contribution) for Snork Maiden too. Her employer contributes 15.4%. As her salary is higher, it seems fair to me to go for the equal percentage salary sacrifices.

BTW I'll see no gain from salary sacrificing this tax year as my marginal tax rate is 15% which is the same as the superannuation contributions tax.*

* In Australia retirement contributions are usually taxed at 15% going into the fund. You can choose to make employee contributions pre- or post-tax. Post-tax ones don't attract the contributions tax but obviously you pay your regular income tax on them. If your marginal tax rate is above 15% (as most people's is) then it seems like a no-brainer to go for the pre-tax contribution known as "salary sacrifice".

Australians' Loss of Wealth

According to an article in the Australia the Treasury Department says that the average wealth of Australians fell from $A249,000 in 2007 to $A225,000 at the end of 2008. This is described as unprecedented. Well, I can't find any information on Treasury's rather uninformative and unattractive website about this. A Google search reveals that the data is included in the "Modeller's Database" released today by Australian Bureau of Statistics. It appears that the numbers given by the newspaper are "private sector wealth" averaged over Australians of all ages. So I downloaded the population figures from ABS too and came up with some charts. First up is wealth per capita in December 2008 dollars (GDP Implicit Price Deflator):



In real terms, Australians' wealth is at the same level as in late 2003.

While doing the calculations I noticed that from when we arrived in Australia in September 2007 till the end of December prices rose 9.1%. Snork Maiden's salary rose 8.9%. Some of that salary increase was supposedly due to a rise in the pay scale. But we are just keeping up with inflation.

The next chart shows that we were near average wealth levels for Australia in late 2007 but since then have dropped dramatically below the average:



These numbers are not adjusted to inflation. The Moominvalley variable is our net worth divided by two.

Contract

I finally got my contract today. Last night on Snork Maiden's insistence I sent another e-mail to human resources and my supervisor immediately also sent one. Today the guy sent me an e-mail at 3:17pm that it was ready and I went downstairs from my office and picked everything up. I'll be busy this evening going through the details and filling in the forms but the key details are:

Official worktime is 65% of full-time

Nominal salary is $A95,126

Employer superannuation (retirement contribution) is 17% on top of that or $A16,171 (the minimum required in Australia is 9%).

So actual salary is $A61,831 and superannuation of $A10,551.

That's about $A10,000 a year less than Snork Maiden earns in a full-time position.

Rather ironically, after taking almost 3 months to come up with this contract, they give me till Friday to complete all the paperwork and return it to them!

****************

Follow up on the conference situation - they didn't agree to swap my papers. I expect I'll end up withdrawing both papers. It's quite a lot of money relative to my earnings.

Venice

My paper was accepted for the Venice meeting. But as I mentioned, I can't use project funding for the trip. Registration would be E450 and the hotel E230. Flying on Ryanair from London would be just £10. The train from Brighton to Stansted airport would cost much more than that! So I estimate a total Australian Dollar cost of about $A1,300. My marginal tax rate is 16.5% so after tax we're looking at about $A1,100. Originally, when I submitted to the conference I didn't know whether Snork Maiden would get accepted for the course in England. But now she can't come with me to Venice and I was there before anyway (1998). So I expect I'm going to have to withdraw my paper. I'll state the reason of course, just in case they have some funds to help out... The Amsterdam meeting is a similar cost and the same story pretty much if they don't agree to swap my papers.

Port Douglas

Last night, Snork Maiden and I booked a trip to Port Douglas (about one hour's drive north of Cairns in Northern Queensland) for us and the Snorkparents. The thing the Snorkparents most wanted to see in Australia was the Great Barrier Reef so it's worth spending quite big on doing this. Snorkmama has actually been there before but she wanted to show it to Snorkpapa. We're flying on Virgin Blue (which was the lowest fare we could find on Webjets - but we bought the tickets on Virgin's own site to avoid Webjet's fees) leaving Canberra at 6:30am in the morning and flying via Brisbane. Return times are much more flexible for the lowest fare.

We started looking at Cairns. There are really a lot of great accomodation options there in both hotels and apartments. Snorkmama, though, had expressed a desire to stay in a small town and Moom had recently been to Cairns. So we then looked at Port Douglas and settled on this apartment complex:




which is close to the centre of town, and the beach, has a decent swimming pool, looks nice, and is a reasonable price. We used Wotif.com, tripadvisor.com, and Google Earth to make our decision. There are cheaper choices, but they are either not as nice or further from town or the beach.

Snork Maiden's next task is to explore whether renting a car makes sense. It might be cheaper than paying for all four of us to travel from the Cairns airport to Port Douglas and perhaps we can then construct our own rainforest tour rather than paying for a trip. There is no need for a car if you just want to hang out in town and the beach and go on a trip to the reef. Moom will look at tour options - does it make sense to buy/book upfront or wait till we get there.

Oh, and the money for the trip came from the money the Snorkparents gave us before we married and when we were in China.

The Answer to My Question:

The answer to my question: "Can I use project funds to go to Europe" is "No". So I just wrote to the conference organizers and told them I can't come unless they swap my papers over and accept the one they previously rejected which has the funding attached to it. Don't know what the chances are but can't hurt to try. The other options are:

2. My supervisor sugggested to find another conference to present at. But I think it is too late for that, but I'll have a look.

3. A colleague elsewhere in Europe is interested in funding a visit by me. We were looking at next year, but maybe...

4. Pay my own way to Europe.

5. Don't go.

I think that's it. Any ideas?

Early Hedge Fund Returns for March 2009

With 55% of funds reporting Credit Suisse/Tremont estimate that hedge funds gained 0.86% on average in March. It's better than HFR's estimate but not much compared to equity markets. But that's fine, hedge funds are continuing the trend of again not being correlated to equity markets, which is a sign the global financial crisis might be abating.

Taleb on Rebuilding Capitalism

A Black Swan in Canberra

Nicholas Taleb has an article in the Financial Times about how he thinks the capitalist system needs to be changed in the wake of the global financial crisis. Roger Nusbaum made some comments on the piece. Taleb's comments are all about making the system more resilient to shocks and some of them make sense in that regard. However, his point that people shouldn't depend on financial assets for their retirement "which they don't control" but instead on "their businesses" that "they control" is problematic. If you've read this blog you'll know that I am all for people being entrepreneurial but on the other hand not everyone is cut out to be an entrepreneur. And risk is very concentrated in most small businesses. While the owner controls management decisions they have no control over the external environment. And though an economy of many small businesses might be more resilient in the face of shocks than one with just a few large ones this isn't true of those businesses themselves. This is why small businesses are usually sold for lower multiples than large businesses. Of course there are some small businesses which are pretty solid like a medical practice, though they still have their risks. But most retail and manufacturing enterprises are at great risk from competition as well as general economic conditions. Farms are at risk from the weather and market prices.

And anyway what is the retiree supposed to do when they "retire"? Sell the business and put the money in financial assets? I guess we might consider land to be a non-financial asset, but it's not risk free either. In pre-industrial economies people could retire by renting their land out to a tenant farmer or relying on their children to feed them.

Realistically, retirement income can only be provided for most people either from financial assets of some sort or from the government taxing productive people and enterprises to pay the retirees. Not everyone has children or could depend on them to look after them. Relying on an employer to pay you a retirement income would be even more risky unless the firm invests in financial assets.

March 2009 Moominvalley Report

We gained this month and so did the markets and we beat the market again. The following is based on the available data as a couple of funds won't report till near the end of the month. As usual everything is in US Dollars unless otherwise stated. I'll continue with the less formal format I adopted last month.

The MSCI World Index rose 8.29% in USD terms and the SPX rose 8.76%. We gained 11.33% in USD terms (3.22% in AUD terms). Performance was strongest in Australian stocks (9.07%) and the Australian Dollar gained. Leverage also helped for a change. Alpha measured against the USD MSCI rose to 4%.

We spent $3052 which is a bit below recent levels. The main mitigating factor is that according to Redbook the value of our car rose which I treat as negative consumption. Snork Maiden was surprised though as with her parents here we expected we would have spent much more than normal.



As you can see from these accounts our retirement accounts did much better than non-retirement investments this month. Net worth reached $202k ($A292k). Asset allocation moved away from our target as Australian stocks gained strongly and the shares of everything else in our portfolio fell:



The craziness of the financial crisis is evident in this chart of monthly returns:



As mentioned above, performance so far this calendar year has been better than the market even when adjusted for leverage in fact:



Points above the regression line are market beating on a risk adjusted basis. The slope of the line is "beta" in this sample.

Initial Hedge Fund Performance for March

The HFRX index is showing a 0.03% decline for March while stock indices rose more than 8% globally for the month. But a lot of the component indices seem to be unavailable so far and HFRX is based on a small sample of hedge funds. So the picture could look different later in the month when more hedge fund performance figures are in.

Moom Returns Breakdown for Feburary 2009

The returns for each asset class are also net of any movements in currencies. Losses have been adjusted up a bit since the close of the month due to hedge fund and commodities returns being poorer than expected.

Snork Maiden Returns March 2009

Snork Maiden finally saw a gain in her non-retirement investments this month after six losing months in a row. The gain was only $A332 or 3.8% but it's better than nothing I guess. Her super account gained $A412 pre-tax (there was a gain last in December). That's 4.1%. These are returns in Australian Dollar terms of course. The MSCI World Index only gained 0.4% in March in Australian Dollar terms.

Can I Use Project Funds to Go to Europe?

My paper about my funded research project was rejected by one of the two conference organizers in Europe I submitted papers to. They accepted a second paper on a different topic. I still need to hear from the organizers of the conference in Venezia but that paper is on the second topic too. So the question is whether I can use my research funds to go to Europe to present on a different topic. Of course I can talk to people there about the research project but it will be very much a general professional development thing. Snork Maiden had both her papers accepted, but she's going to the course in England during that time. I could present one of her papers but unless she registers we probably won't get a presentation slot.

AEP Announces Program To Maximise Shareholder Value

From the press release:

AEP ANNOUNCES PROGRAM TO MAXIMISE SHAREHOLDER VALUE:

• $60 million pro-rata return of capital proposed
• Continuation of business model for existing investments
• Suspension of new investment activity for the time being
• Shareholder vote in two years to determine future direction of the Company depending on
share price performance

AEP is a private equity company listed on the Australian Stock Exchange. The stock has been trading at less than 50% of net asset value for a while now. So it is good that they are looking to try to boost the share price, which indeed did rise on Friday following the announcement. It would be a shame though if this opportunity for retail investors to participate in private equity was wound up in the end.

Rationale for Joining LinkedIn

This guy has almost the same rationale as I did for joining LinkedIn - getting more visibility for your own website (and yourself). The same is true of RePEc in economics. If you are not on that site, to some extent you don't exist in economics... Increasingly people will use these sites as well as the traditional search engines to look for expertise. And RePEc and LinkedIn pages tend to come in high in Google Searches.

Sandisk Cruzer 16GB

I got the 16GB version of the Sandisk Cruzer USB Flash Drive in JB Hi Fi for $A75. The local Apple reseller only had one rather ugly small LaCie drive available. Dick Smith had plenty of 2 and 4GB drives but only one type of 8GB drive and no 16GB drives. I only recently realized that JB Hi Fi also sold general electronic goods... The name of the store is not that descriptive.

I followed the instructions on Sandisk's website for removing the included U3 software (which is useless on a Mac) and I reformatted the drive as a Mac drive. My e-mail often shows a very noticeable "latency", but so far it is not too annoying...

Moominmama in March

The table shows Moominmama's performance in March. The MSCI World Index gained 8.29% and the S&P 500 8.76% (total return). But Moominmama's allocation to equities is pretty low (24%) so she only gained 2.80%.

Flash Drives and Trees

I just got an e-mail about a new social media things called Academia.edu. The organizers state:

"Academia.edu was founded by Richard Price and a team of people from Stanford and Cambridge University. The aim is for the site to list every academic in the world, together with their university and department affiliation."

But like LinkedIn, I'm not yet sure whether it is really much use for anything else but being seen to be there. From a quick look around, it's overwhelmingly graduate students who are members despite the claim that: "Stephen Hawking, Richard Dawkins, Noam Chomsky, Paul Krugman and Steven Pinker have all added their names to Academia.edu's tree recently, and so have 70% of the Nobel Prize winners for 2008."

I'm settling into my office - all my books and stuff are now there and my computer is set up and I have an appointment scheduled for today to check my ergonomics.

I'm trying to decide on the best system to always have the most up to date version of my data (i.e. all my computer files excluding applications etc.) with me whether I'm working at the University or at home. In the past I've used an external hard drive with all the data on it, which I've then plugged into my home or office computer. I had the applications residing on the computers and used the computers as backup for the data (where usually an external drive is considered the backup). The only problem is the long cable to the drive is awkward when using a laptop and gets easily disconnected. I know that there are networking solutions like Apple's MobileMe but I can see where that will very quickly exceed my internet download allocation at home or I'll still need to use the hard drive to make backups. So the solution I'm coming to is getting a 16GB USB flash drive instead. It's big enough for all my data. I have a 2GB one at the moment Kingston Data Traveller but it is very slow when copying lots of small files as some users note. And too small for even my e-mail database. From what I read there is no reason why these things should be slower than hard drives. Maybe the next one I get will be faster?

Key

Finally today I got the key to my office and Snork Maiden and I moved some of my books and files in there this evening. My computer should be set up and in situ tomorrow. I still don't have a contract or a university ID that will let me access the library databases but I should soon... I'm also going to try to get a better chair. Looks like I might be able to just go buy one and claim reimbursement from my project funds. As I mentioned a while ago I had back problems last year and bought a new chair for home use. I don't want to risk the same kind of injury by sitting in an unsuitable chair. Hopefully I can do this without some bureaucratic requirement for a health and safety person to assess my needs...

Moominvalley, 2612, ACT, & Australia

Continuing the series on income and tax in the ACT and Australia, today's post compares the averages for "Moominvalley" (Moom's and Snork Maiden's average per person) in 2007-8 with the averages for our postcode, our state, and our country in 2006-7:



We earned a lot less than average in 2007-8 than these regions did in 2006-7. In terms of total income though we earned $36.7k compared to the Australian average of $43.5k. Fortunately we paid a lot less tax both absolutely and in percentage terms - just $3.5k in net tax (9%) compared to the Australian average of $9.7k (22%). The postcode average was 24% and ACT 23%. We got more imputation credits (for corporation tax already paid on dividends received), more capital gains, and much larger deductions than the averages for all these regions. All these reduced our final tax bill. We claimed particularly little in work-related expenses, however, as Snork-Maiden's employer is very generous in covering costs on business trips and she gets a laptop from work that covers her computing needs at home too. I claimed investment expenses instead of work-related expenses. Work-related expenses are employee, not business expenses. So they are really rather high as an average in Australia...

Sydney Trip

Most of last week we were on a trip to Sydney together with the "Snorkparents". The picture is the view from Watson's Bay of the Sydney CBD. Snorkdad said "Hong Kong" when he looked at this view and I replied "bu shan" (no mountain). I took them (while Snork Maiden was at her conference) on a trip to Circular Quay on the ferry to Watson's Bay, on a walk around South Head, fish and chips lunch, bus to Bondi Beach (snoozing in the sun for them and swimming for me) and back to the city. We are getting quite good at a few words of Chinese and English and lots of gestures. On Thursday I gave a presentation at the University which went well until someone asked a question I wasn't prepared for about stuff I haven't done yet but plan to do and my mind froze. I did manage to partly answer his question in my answer to the next question. I didn't get a good impression of the department though and all of us feel glad to be back in Canberra and don't relish the idea of living in Sydney. So maybe it's all for the good... Sydney's a great place to visit (apart from scratching the car in a parking garage and getting a parking ticket).

I also attended a few presentations at the conference Snork Maiden attended including one by a famous economics blogger. It was OK but Snork Maiden thinks he's better on his blog :)

P.S.

Snork Maiden just heard that she got accepted for a two week course in England - only problem is that is the second two weeks of June. And the meeting in Italy is the last week of May. I won't hear till Wednesday about the paper I submitted to a conference in Venezia in mid June and about a conference in the Netherlands till April 17th. Unfortunately, Snork Maiden wouldn't be able to come to Venezia with me. We'll have to see what Snork Maiden's supervisor thinks about such a long absence too... But soon we'll have to start booking flights and getting visas for her.

2006-7 Income and Tax for the ACT and Australia

Following up on Friday's post I've calculated the per capita breakdown of different income sources for all ACT postcodes and Australia as a whole:



I included both taxable and non-taxable individuals in my numbers - but total is still much less than the total population. For Australia the total is 11.8 million vs. about 21 million people in Australia. There is a lot one could learn from this data, so here are just some points that caught my attention:

1. As is well known the highest income ACT suburbs are all in the "Inner South" surrounding the parliamentary triangle. The poorest postcodes are all in Tuggeranong and Belconnen with Gungahlin also having lowish incomes. These are all outer suburbs. This is the standard Australian pattern of the rich living near the centre and the poor in the outer suburbs. The 2601 postcode though is strangely not so wealthy. I think this is because it not only includes the CBD but also the ANU campus with its student population.

2. Even the poorest ACT postcode, 2911, has a higher income than the Australian average.

3. Landlords on average lose money in all ACT postcodes and in Australia as a whole. Rental income is for some reason unusually high among Gungahlin residents.

4. Not all income sources are included as the numbers for individual sources do not add up to the totals.

5. Capital gains, not surprisingly, are very concentrated in the two highest income inner south postcodes (and Hall - a rural village in the ACT).

6. Business income from primary production (agriculture, mining etc.) is negative in almost all postcodes and in Australia as a whole. Not surprisingly it's concentrated in Hall and Pialligo. But non-primary production business makes money on average in all postcodes.

I'll be continuing this series with at least a couple more analyses.

Annual Australian Tax Statistics 2006-7

The annual report on Australian tax collections has just been published by the ATO. It's just crazy that "the vast majority of people use a tax agent" to submit their tax return in Australia. The Moomin household is in the 11.8% who submitted a paper return (well we didn't pay tax in 2006-7 of course, so in 2007-8 that percentage would likely be even lower). That's because e-tax only runs on Windows (and I think you also needed to have submitted a return in the previous year).

Otherwise, I'll confirm that we don't live in either the richest or poorest postcodes mentioned in that article :) In our neighborhood mean taxable income was $61,000 which was more than taxable income, let alone mean taxable income (see Moom's taxable income and Snork Maiden's taxable income - there is no such thing as a "joint return" in Australia). The raw data is available here.

Credit Suisse/Tremont Hedge Fund Index Again Impacted by Rogue Fund

The final Credit Suisse/Tremont numbers are in for February with the index losing 0.88%. In a replay of the Madoff scandal, equity market neutral index was down 5.61% partly due to the WTGC scandal. What is it about "equity market neutral" that attracts the scammers?

HFRI is down 1.13% for February and their equity market neutral index is down only 0.76%. HFRI is an equal weighted index of 2000 hedge funds. So no single fund impacts it much and I don't know if this WTGC thing was even included.

Book Review: Tim Ferriss - "The 4-Hour Work Week"

Snork-Maiden somehow convinced her employer to buy this book for their library :) I have mixed reactions. It's not one of these books that just drearily pads out a single idea in to book length format like Zilliak and McCloskey. So that's good.

1. I'm all for the don't defer life approach. Instead try to make money at something you like to do anyway and have fun doing it. That's pretty much what I've done most of my life as much as I can, so no problems with the basic premise.

2. Then there is stuff on focusing and cutting out useless or less useful work. This is good in principle.

3. "Low Information Diet". Taleb also says he doesn't read newspapers. This is a non-starter for an economist like me who is expected to have an opinion on what is happening in the political and economic spheres. Well anyway I enjoy reading news and opinion. I occasionally read fiction but prefer to read current affairs stuff for fun. I'm a social scientist. But there is another problem with it which also features in the next item...

4. "Interrupting Interruption and the Art of Refusal". It's certainly good to think about how to streamline routine interactions with people. But if you did half of what Ferriss suggests you'd come across as a total jerk who I wouldn't want to do business with. People who seem to have no interest in anyone else. And, though many meetings and interactions are a waste of time, you never know what might happen just as you never know what you might read that might be useful and give you a great idea. In other words, you need to be open and receptive to "positive Black Swans" not be some narrow-minded overplanning idiot.

Of course, what works for you will depend on what your personality type is. In the Myers Briggs system I guess that Ferris is an INTJ - Introverted, intuitive (but could be S sensing), thinking, judging. Certainly not an E-P (extroverted, perceiving) type who is open to learning and adapting to experience. Well, that's the impression his book gives.

5. The core of the book is very detailed information about setting up an internet based business which looks like it would be very useful for someone who wants to do that. It's never interested me enough to want to do it. So this section eventually got me rather bored and skimming through. My life has been based around being an employee who is least like an employee. The ultimate job I found was being a research only academic. In many ways that is great on the other hand I found myself getting stressed out worrying about how I could justify myself receiving money from the government as salary at times when my research wasn't going well. But that's because I am very conscientious. For someone like Ferriss who is willing to pretty much cheat to achieve his goals (i.e. his method of dehydrating to get into a very low weight class in Chinese kick-boxing and then inflating up again before the fight) it wouldn't be a problem. Being a trader also sounded cool but turned out to be hugely anxiety producing and not suited to my personality really.

6. The final part is all about planning travel and international relocation. I'm pretty much an expert at the latter so I skimmed pretty fast through this bit.

Don't get me wrong, there's lots of good stuff in all the chapters but don't think you should implement all of it and not all of it might be for you. I think my opinions differ because Ferris can't really imagine making money from doing what he wants to do anyway. So he is still in the mode of work is separate from life and you should compartmentalize. That's not at all where I'm coming from.

Career - Next Steps

The chairman told me that I interviewed very well and he doesn't have any feedback in that regard and if I find somewhere more matching my interests I should get the job. The potential Sydney job is a much closer match though we're not keen on a move to Sydney. It's nice to visit there but I prefer the weather here (I hate humidity) and both Snork Maiden and I like the bikeability and closeness to countryside etc. I also now have lunch lined up in a couple of weeks with the director of another school at the uni here.

Didn't Get the Senior Lectureship

I just heard that I didn't get the Senior Lectureship (Associate Prof in the U.S. system) position at the University down the street from me. The feedback I got so far is that people liked me but wondered whether I would be a good fit for the Department. The chairman had told me that he thought I was a good fit in fact which is presumably why I was interviewed, though they didn't originally advertize in my area of expertise. But another member of the selection committee seemed grumpy throughout my presentation and formal interview and I didn't get to meet them one on one so my expectation is that they was the main force against me. Anyway, I've asked for some more feedback from the chairman if possible to help me in future interviews.

I know from the most accepted research ranking in our discipline (who are obsessed with rankings) that I place pretty much in the middle of the full professors in that department. So it's certainly not a question of me being qualified as far as research strength goes.

Still no news on the job I supposedly did get. I e-mailed all the relevant administrators three days ago and not one of them has seen fit to reply to me at all.

I'm going to seek a meeting with the head of another School at the university to see if he can keep me in the loop regarding developments there. He is an old colleague from when I used to work at this University and just was promoted to Head of School. And I have my presentation in Sydney coming up later this month. They are looking for the equivalent of U.S. full professors. Discipline-wise it is the perfect fit to me. Their department is small and not very strong but if I went there it would be an opportunity perhaps to build something up. I'm not keen on moving to Sydney though.

I also just wrote to the people who wrote recommendations for me to thank and state that I hope I can rely on them in the future to recommend me.

I also have ideas for future research grants that I could pitch to funders...

P.S.
I just heard from one of the administrative staff, but basically the message was there might be progress next Tuesday or later.

Australian Unemployment Rising, But Still Low

Chart at Peter Martin's blog.

Planning Our Trip to Europe

Snork Maiden yesterday got a rejection e-mail for the paper she submitted to a conference in Slovenia. Having organized an international conference of this type myself where most presenters pay fees to attend the conference, I really can't understand conference organizers who reject papers unless they are really off topic, really incomprehensible, or multiple submissions. The excuse here is that "the facilities are insufficient for more than a certain number of papers" and so only the best will be accepted. Rent more facilities and charge participants more than the marginal cost of hosting their paper! Yes, the conference I organized did not have exorbitant fees and made a lot of money :)

Anyway, so Slovenia is out but plenty of places are still in the running. Venezia (a conference on the island pictured above where I attended another conference in 1998); Brighton, UK; Lecce, Italy; and Amsterdam. Between some juggling of these conference/workshop locations perhaps we can visit Moominmama and Moominbrother (somewhere in the Mediterranean basin). I just remembered yesterday that I have a friend (former student) based in Rome currently (working for UN FAO). I've used Rome before as a hub for European travels maybe we can do that this time. Frankfurt, Amsterdam, and London are the most likely other locations (done 'em all). OTOH Snork Maiden has never been to Europe and so is excited to check out everything.

P.S.
On review, it seems likely that Brighton is out of the running as successful candidates should have heard by 5th March and it is a European Union funded thing. The Lecce people confirmed that they will pay Snork Maiden's costs. I just need to hear about the Venezia thing to start to set the trip up.

Book Reviews: Gladwell

I read Blink by Malcolm Gladwell. While it is a good read I found it rather frustrating. I agree totally with the tone of the Wikipedia article. I guess it is too journalistic and not analytical enough. Sometimes making intuitive judgments is good and sometimes it is not. Some people are born with the abilities to make them and other times they can train to have those abilities. Well, the real world is messy I suppose but Gladwell doesn't make it much more tidy.

Next I tried to read "The Tipping Point". After reading about people who are "Connectors", "Mavens", and "Salesmen" I quickly got bored and gave up on reading. Maybe it is just too culturally specific to the US (where I lived ten years so other non-Americans would be really alienated). Very lengthy examples are Paul Revere, Sesame Street etc. It really didn't seem to be about how small things make a big difference as it is subtitled but about how social networks work. It really wasn't about "tipping points" at all as I would understand the term.

Next I've started Tim Flannery's "The Weather Makers"...

Credit Suisse/Tremont Hedge Fund Index Estimated to Finish down 0.45% for February

New York, March 9, 2009

Early estimates indicate the Credit Suisse/Tremont Hedge Fund Index will finish down 0.45% in February (based on 59% of assets reporting).
Volatility in global equity markets was fueled by an adverse feedback loop between the financial sector and the
economy in February, creating opportunities for hedge funds to capitalize on market swings. The Royal Bank of
Scotland in the UK, AIG in the US, and UBS in Switzerland all posted the highest corporate losses in recent times for
their respective countries. Hedge funds continued to decouple from equity markets and outperformed the MSCI World
Index by 10.04% in February and by 17.9% year-to-date. This can be attributed, in part, to many hedge funds taking
short positions, defensively positioning themselves with reduced net exposures to equity markets, tactically harvesting
market volatility, and being less constrained by the deleveraging process that hamstrung some managers in 4Q 2008.
The Dedicated Short Bias strategy looks to be the biggest winner for the month with an estimated return of 4.09%.

Topped-Up Australian Margin Loan

I paid down $A1000 of my Australian margin loan to reduce the risk of a margin call. It's one thing I can do to reduce anxiety. Still waiting to hear on the jobs. The money came from a credit card. I need to get paid soon.

Day Starting Badly.... Will it End Well?

Today I'm supposed to get my contract for the one year job and hear the outcome on the permanent job. Well, they said on both: "By the end of the week". And Monday is a public holiday here...

So the US market was down again and I was again forced to sell. Again, I miscalculated. I'm below the threshold for buying on margin now anyway, so I can't make the mistake again, any time soon...

And then I dropped a cup of coffee it to the drawer of my bedside table/nightstand and all over the place. At least it let me get my aggression out by doing a bunch of cleaning!

Hedge Fund Performance for February

The HFRX (daily small sample) index lost 0.38% for February. As you know stock market indices fell sharply with the MSCI World Index down 9.73% and the SPX down 10.65%.

February 2009 Report

I don't feel like writing my standard monthly report this month - too depressing. The market keeps going down with the MSCI down 9.73% and the SPX down 10.65%. We "only" lost 4.71% in USD terms (5.33% in AUD terms). Could be worse I guess. The last two months have been market beating:



This month this is due to a relatively strong (or less weak) performance by Australian equities. We did OK on non-US foreign equities too. Private equity sucked even more than US stocks... Maybe I'll report the breakdown at the end of this month when all hedge fund returns are available. Because of our relative outperformance alpha measures crept up this month to 3%.

Somehow we managed to spend almost $A6,500. Car costs totalled $A1,250 including $A777 for annual registration. My trip to Cairns cost more than $A500 of out of pocket expenses some of which will be refunded when I finally officially have a job. Snork Maiden spent $US527 on her parents visit in February. So that about explains the increased spending.

Our spending over the last 12 months is beginning to decline as we settle down from our move to Australia (all the humps in spending are international moves) and the Aussie Dollar declined. Comprehensive earnings over the last 12 months remain dire:



When the green line is above the red line net worth increased in the last 12 months and vice versa.

Book Reviews: Zilliak and McCloskey and Taleb

Snork Maiden brought home borrowed copies of Ziliak and McCloskey's "Cult of Statistical Signficance" and Taleb's "The Black Swan". in a way both are rants against standard practice in quantitative analysis. But Taleb's book is ten times better or more than Ziliak and McCloskey's. The latter have a single point that researchers often misuse the concept of statistical significance and ignore the actual size of an effect or variable in favor of just stating that it is "significant" - which just means in statistics that there is a low probability that we think there is an effect when there is none (the probability of falsely rejecting a null hypothesis that is in fact true). Now many researchers write up ineffective discussions of what their research found or make fundamental mistakes in method. But it's not universal and the book never really explains key concepts such as what statistical significance is. It's just one huge rant against all the economists and statisticans that the author feels have oppressed them or their like-thinkers. It assumes we know these things and know the authors critique already (which I do as an economist). The statistician R. A. Fisher is the big villain of the story and Gosset the oppressed hero. But there is never any discussion of exactly what their contributions were.

By contrast, Taleb defines all the basic ideas he uses and has more than one idea. Not all are original of course. Many are commonplace in recent behavioral economics and in more general economics. And they are not esoteric ideas in economics. Winner takes all ideas are in Frank and Bernanke's introductry textbook that I used to teach from. There are notes for the sources at the end of the book. And yes he rants and raves against everyone he believes thinks incorrectly but he does it in an amusing way. I like to read him and didn't find him too annoying. Some people complain about his use of fiction, autobiography, and fictionalised autobiography alongside factual material. In this he reminds me of Robert Pirsig who embedded philosophical and autobiographical material in a story about a motorbike trip across America in "Zen and the Art of Motorcycle Maintenance". I don't have a problem with it. It makes the book much more readable than it would otherwise be.

World's Top 200 Universities

All the universities I've studied or worked at are on this list. There's some luck in that. I've interviewed for jobs at some that are not on the list such as Clark University, New Jersey Institute of Technology, and Scottish Agricultural College (unless you reckon it's part of the University of Aberdeen) but none made me an offer. And then there are some on the list I interviewed at but wasn't made an offer. Most prominent among those is the University of Cambridge. My presentation at the end of the month is also at a top 200 university.

Career Update

The interview went smoothly but I think my chances are 50:50 on getting the job. Some people seem enthusiastic about hiring me while others seem skeptical. They say they'll let me know by the end of the week. I am also told that I should have a contract on the short-term research position by the end of the week. It's supposed to be for 3.25 days a week at what seems to be a nominal annual salary of $A100,296.