-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- ------------------------------------------------------------------------ Today's Lesson from Stocks and Sex by Robert Prechter Most people think that the economy is a key determinate of stock market behavior. Pages 260 through 264 of The Wave Principle of Human Social Behavior and the New Science of Socionomics demonstrate that actually, social mood trends, as reflected by the trends of the stock market, determine the direction of economic activity. Most people think that politics affect the stock market. Pages 272 through 282 in the book show that the social mood, as reflected by the stock market, controls the selection of leaders and therefore the direction and outcome of politics. Most people think that war and peace mightily affect the valuation of stocks. Pages 265 through 270 show that aggregate mood trends, as reflected by stock prices, determine social climates that are conducive to peace or war. The fundamental observation of the new science of socionomics is that social mood, which is patterned according to the Wave Principle, is the generator of social action, be it economic, political or cultural. The key insight of socionomics is that the direction of causality between social mood and social action is precisely the opposite of that which is almost universally presumed; the former dictates the character of the latter, not vice versa. ===== Reinventing Government Corruption Gore Affirms His Faith in Sleaze-Bag Political Fixer Tony Coelho, with his envelopes of cash, hits a home run. Vice President Al Gore yesterday dismissed as irrelevant a new government report that found questionable financial management by his campaign chairman Tony Coelho -- despite not having read the report. "People that I talk to are not interested in inside baseball," Mr. Gore said. "He is staying and I haven't seen this report but I know him. He is going to continue doing the terrific job he has been doing as my campaign chairman." State Department investigators say Mr. Coelho approved questionable contractor payments, hired his niece for a job and made the government liable for a $300,000 personal loan while directing the U.S. pavilion at the 1998 world's fair in Portugal. Their report says Mr. Coelho and his staff also misused $210,000 in donated airline tickets, hired two stepsons of the U.S. ambassador to Portugal and had the government reimburse $26,000 in questionable expenses to a consultant who worked in Mr. Coelho's New York City office. Mr. Coelho's rental of a chauffeur-driven Mercedes "was especially troublesome" because the cost exceeded a $500 ceiling while a fleet of six vans for the pavilion were underused. Mr. Gore also dismissed in similar fashion criticism that his choice of Mr. Coelho was both cynical and hypocritical. Mr. Gore, a onetime recipient of campaign money from "big tobacco," supports anti-smoking legislation and has made impassioned speeches about his sister dying of lung cancer. Mr. Coelho was most recently chief strategist for tobacco companies' advertising campaign to kill anti-smoking legislation. "People don't care about that," Mr. Gore said. "People care about what is the agenda, what are the issues." Mr. Coelho, whom the vice president hired in May to organize his sagging campaign, has not responded to the report's charges. His personal attorney, Stanley Brand, has said his client did not violate any laws in a job that did not pay him a salary. Mr. Brand acknowledged "there may have been management lapses" as in many government contract programs, but contended most of the negative conclusions were aimed not at his client, but at the U.S. Information Agency officials for whom Mr. Coelho worked. The inspector general's report, first reported by the Associated Press, was released by the Center for Public Integrity, a nonprofit organization that tracks government fraud, waste and abuse and ethical conflicts involving public officials. The report is the latest bad news for Mr. Gore, who last week announced he is moving his campaign from Washington to Nashville and that he will engage presidential nomination rival Bill Bradley, whom he previously had ignored. While Mr. Gore offered little on the charges swirling around his campaign chairman during an interview with the CBS broadcast "Face the Nation" in Portland, Maine, he did heighten his criticism of Mr. Bradley. Mr. Gore, sitting at a public marketplace, accused Mr. Bradley of jumping ship during the "two defining moments in the Democratic Party over the last 20 years." The vice president criticized Mr. Bradley for supporting "Reaganomics" by voting for Mr. Reagan's budget cuts, and for leaving the Senate in 1996 rather than staying to fight House Speaker Newt Gingrich and congressional Republicans. "Bill Bradley voted for Reaganomics. He voted for all those budget cuts. I did not. I've been a part of the effort to try to bring our country out of that time," Mr. Gore said. "At that moment I tried to help rally the troops, the forces of what I regard as progress. Senator Bradley chose that moment to say that he was going to leave the public arena." "At those two defining moments, there were clear differences," Mr. Gore said. Mr. Bradley, however, says in his campaign biography that he was one of three senators who supported the Reagan budget cuts but also opposed the Reagan tax cuts. Mr. Bradley says his position "would have entirely prevented the debt explosion of the 1980s." Mr. Gore yesterday renewed his call for "high-toned" debates with Mr. Bradley. "I am sorry that he has turned down my debate challenge," Mr. Gore said. "I wish that he would accept and I hope that together we could create a different kind of campaign." Mr. Gore, mindful that core Democrats pick the party's presidential nominees, declined to say that Mr. Bradley is more liberal than he is, even though Mr. Bradley has moved to the vice president's left on health care, gun control and campaign finance reform. Mr. Bradley also is against welfare reform, which Mr. Gore supported. "I think the old labels are kind of shopworn." Mr. Gore reiterated that he believes Bill Clinton is a great president. But he presented a new take on his December defense of Mr. Clinton. Mr. Gore now says he called Mr. Clinton one of the greatest presidents in history "in the midst of political combat." Mr. Gore said in December, the day Mr. Clinton was impeached, that the president would be remembered as one of the greatest presidents in history. "The Republican Senate was about to try to remove him from office for an offense, which, while terrible, was in the judgment of the American people, not one that justified removal from office," Mr. Gore said yesterday. "We were in the midst of political combat and I think that fighting back to try to prevent a political injustice from occurring justifies drawing a line in the sand and saying, 'Hold on here, look at the great achievements that we have.' " Mr. Gore reiterated his prior statement that Mr. Clinton's behavior in the Monica Lewinsky scandal "damaged the office" of the presidency, but he said that Mr. Clinton has recovered. Mr. Gore also defended his hiring of chief strategist Carter Eskew, who engineered the tobacco industry's campaign against federal tobacco legislation. "See, this is all inside baseball," Mr. Gore said. The Washington Times, October 4, 1999 Global Bureaucracy Oops! Now Zimbabwe Lies to the IMF Everyone Knows Stanley Fischer is a Sucker Zimbabwe has misled the International Monetary Fund over millions of dollars of military spending used to bankroll its intervention in the Congo war. Evidence before the Fund centres on a discrepancy between figures used internally by Zimbabwe's ministry of finance and statistics provided by the Zimbabwean government to the IMF. Zimbabwe has told the IMF that its spending on the war was the equivalent of $3m a month. But an internal memorandum refers to expenditure of $166m between January and June. An IMF spokesman said the Fund was aware of the finance ministry document. "We have asked for clarification from the Zimbabwean authorities on the amount of the spending overrun in general." The economic outlook for Zimbabwe - led for the past two decades by President Robert Mugabe - is worse than thought, with inflation at more than 65 per cent and foreign exchange reserve cover down to two weeks. The Fund's board approved a $193m standby credit for Zimbabwe on August 2, with $24m available immediately. At the time, Shigemitsu Sugisaki, deputy managing director of the IMF, said the board had discussed the risks that Zimbabwe's involvement in Congo posed to its fiscal and balance of payments performance. It called on the government to publish regularly its defence spending data. For the past 18 months Zimbabwean troops have been in Congo in support of President Laurent Kabila's war against rebels backed by Rwanda and Uganda. In the July letter of intent with the Fund that secured the standby loan, Herbert Murerwa, finance minister, said the cost of the Congo campaign to the Zimbabwe budget would rise this year to US$3m a month. This represents 0.6 per cent of GDP, up from $1.3m a month last year. The Harare authorities said the Congo government would pay the bulk of the military costs. They said any excess spending over the appropriation for 1999 would be met through enforced savings in the military budget and would come out of the government's general contingency reserve. The World Bank is scheduled to meet on Tuesday to discuss Zimbabwe's loan programme. The Financial Times, October 4, 1999 Alpha and Omega of the Stockmarket So, Just How Good is Your Fund Manager? Did he remember to put the gas cap back on after kicking the tires? Just how good is your fund manager? If it is a crucial issue for those deciding whether to choose an active manager or an index-tracker, it is even more vital for anyone tempted to give money to a hedge fund. After all, one can only justify the high fees paid to a hedge fund manager if one assumes they are very good managers indeed. But defining the skill level of a hedge fund manager is a tricky business. Are successful managers, even supposedly "equity neutral" ones, riding the back of a bull market? Or have they outperformed by piling into volatile areas such as internet stocks? Get academics and financiers on to this issue and what do you get? A Greek letter, of course. The people who brought you beta, a stock's correlation level with the market, have now produced alpha, defined as the excess return from active management, adjusted for risk. Ideally, alpha measures the pure skill of the manager rather than the effect of a rising market or skewed portfolio. But as a recent article* by two US professors, Thomas Schneeweis and Richard Spurgin, points out, not everyone is using the term alpha in the same way. Some managers are defining alpha as the excess return over a risk-free rate (such as Treasury bills); others in terms of some more aggressive benchmark, say the S&P 500. It has, of course, been pretty easy for most managers to beat a risk-free rate in recent years, given the performance of the equity and bond markets. However, as the academics point out: "It is not appropriate to say that you have a positive alpha simply because the return is greater than the risk-free rate unless your portfolio is risk-free." The S&P 500 index has been a much harder taskmaster. Few active managers have been able to beat it consistently during the recent bull run. But while the index may be an appropriate benchmark for a long US equity hedge fund, it does not seem a sensible measuring post for, say, a distressed debt manager. The danger is that hedge fund managers will boast of their alpha when the figure is either inappropriately calculated or simply overstated. With pension funds such as Calpers in the US, or the coal industry in the UK, moving to put money into the hedge fund sector, this is rapidly becoming an important issue. One answer might be general agreement on an index for hedge funds, and in particular the various sub-categories (global macro, arbitrage and so on) into which the funds can fit. Evaluation Associates Capital Markets operates the EACM 100 index, and Credit Suisse First Boston and Tremont Advisers are launching a series of indices in early October. CSFB Tremont is even planning a range of index-tracking products linked to these benchmarks. Not everyone thinks this is a good idea. Tim Hodgson, senior investment consultant at Watson Wyatt, says the problem with conventional fund management is that it has become very constricted by the benchmarks. The whole appeal of hedge funds is that they are free to put the best investment ideas into their portfolios. The widespread use of indices might lead hedge fund managers to change their behaviour and to become more conventional. What about the Sharpe ratio? This measure, which compares the excess rate of return from an asset with its standard deviation, might seem an ideal solution. It appears to show whether the manager is generating excess returns only by taking outsize risks. However, the academics are not convinced. For a start there is the benchmark issue again. Schneeweis and Spurgin complain that "some managers emphasise the non-correlation of their strategy with the S&P 500 and then turn around and offer a comparison of their Sharpe ratio with that of the S&P 500 to indicate superior alpha performance." Furthermore, what pension fund investors should really be concerned about is whether a new investment adds or subtracts from the risk/reward profile of the entire portfolio; the Sharpe ratio does not give them the answer to this problem. The bad news for investors is that at the moment there is no easy answer to the alpha conundrum. But the good news for actuarial consultants and academics is that the issue will generate fees and working papers for many years to come. The Financial Times, October 4, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance�not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credeence to Holocaust denial and nazi's need not apply. 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