Jamesian Philosophy Refreshed

The Federal Trade Commission seems to have reached a settlement with Facebook over privacy related issues that they two sides have been litigating since 2012. That, you will remember, was the midpoint of the Obama administration. The gist of that lawsuit was that Facebook had been making deceptive claims to its users about their ability to control the privacy of their personal data. It offered settings which were suppose to limit access to their data to those they designate as their Friends. But the same information is in fact made available to a lot of other parties, such as the developers of the apps those friends use.  As a general rule, folk: if you aren't paying for something, you aren't the customer. You're part of the product. Facebook's whole business model depends upon SOMEBODY being willing to pay money for the data stream you generate by using the site for all the free fun in provides.  The new settlement won't change that.  Informational pri...

A recent paper by six scholars affiliated with Johns Hopkins University investigates how one can make alpha by tracing the foot traffic into brick and mortar stores and engaging in a pairs trading strategy on that basis. Let's back up. What the heck is pairs trading? It is a strategy available any time two investable assets (A and B) are related to one another in a predictable way. Consider Exxon and Chevron. When broad industry factors are the driving force, one would expect that an increase in the value of Exxon would be an increase in the value of Chevron. Their stocks would move in parallel lines.  Sometimes, one or the other will move for an idiosyncratic reason -- say, a scandal about the CEO of one of these companies may make headlines, pressing that stock down. That may not impact the other one, or may even drive it up, as people unhappy with the CEO news but still eager to invest in crude oil sell one and buy the other. A pairs trade is typically a trade on a ...

By "alpha seekers" for the purposes of this list I mean the managers of funds that invest actively in a range of markets, and that work to do better than average (by various benchmarks). This is a list of big stories of the year ending from their point of view, and it differs from a more general list of financial/economic top stories, which I will present tomorrow. This, 2016, has been an eventful year for seekers of alpha, their counterparties, and their service providers. For example, the Federal Trade Commission cut a deal with Herbalife this year, disappointing those seekers of alpha who had hoped the FTC would crack down on it as a pyramid scheme. A short side analyst for Macquarie was rather dramatically excluded from a Pax Global earnings briefing, laying bare some of the tensions in the financial community in Hong Kong. And "reverse carry" seemed to rise to prominence in the world of foreign exchange. But in my quite arbitrary and selective count, none...

Aside from the considerations we discussed last week, there is this to remember about stock performance, the performance of a stock as an investment is not (entirely) a matter of whether it rises or falls in price. A stock also entitles its holder to a portion of whatever dividends the issuing company may declare. Suppose, then, that we do the arithmetical magic to factor in the dividend stream as if it were being paid out day by day, and we included that along with the stock price move as the performance of XYZ. Once we do this, we’ll want to be sure that we’re matching the stock price against a broad market benchmark that also includes dividends as part of performance. Fortunately, these are readily available. The S&P Index, for example, comes in three variants: one that considers solely the price of component stocks; one that factors in dividends (the “total return” index); and a third that subtracts the tax on those dividends (“net return.”) We might make discussi...