Dead Parrots

In a recent interview, Harry Markowitz, the father of Modern Portfolio Theory, declared his child was not dead. The 84 year old Nobel laureate, stated “Whether you like portfolio theory or not, whether you think there are black swans or not, either you credit me or blame me, but I am the father of modern portfolio theory.”

…..(sounds of crickets)…..

Hmmm…well, I am not sure what that proves. But, I do know one thing. The death of modern portfolio theory makes me nostoligic for the Monty Python-Dead Parrot skit. Markowitz maybe short a few nails, but his parrot is dead.

“'E's not pinin'! 'E's passed on! This parrot is no more! He has ceased to be! 'E's expired and gone to meet 'is maker! 'E's a stiff! Bereft of life, 'e rests in peace! If you hadn't nailed 'im to the perch 'e'd be pushing up the daisies! 'Is metabolic processes are now 'istory! 'E's off the twig! 'E's kicked the bucket, 'e's shuffled off 'is mortal coil, run down the curtain and joined the bleedin' choir invisibile!! THIS IS AN EX-PARROT!!

Should we be surprised! He is a Nobel laureate. It is a badge they hand out for extreme cognitive dissonance. Here are some examples:

Anytime you purchase an investment product, there is always a disclaimer. It states, “past performance is not indicative of future results.” That disclaimer should be enough to justify digging a small-Polly-sized-hole in your backyard. However, MPT instead decides to build a portfolio based on this very thing. It looks at the past performance, tries to measure past risk (not measurable), and adjust the mix of asset classes in an “efficient manner” (meaning highest return for lowest risk) by using past correlations. Just forget that past performance not indicative of your future results (soon to be horrible) thingy.   

This is a blog post so I will not go too deep, but here are some criticisms that should cause the toilet to swallow the parrot:

·         Asset returns are normally distributed. If this was the ture, we would not have 100 year crisis every 5 years.

·         Markets are efficient. Are you kidding!?! Please explain how a stock drops a few percentage points at the end of the day without any new information. Also, why do we prosecute the non-crime of insider trading? They can alter the price without disclosing the information.

·         All investors are rational. I have yet to meet one rational person. Either you are stupid and irrational or you know how the world works which causes insantity.

·         Investors have an unlimited lending and borrowing ability at a risk free rate. Okay, the Fed is trying. Arguendo!

·         All investors have access to the same information at all times. Maybe the congressmen (exempt from insider trading) has a little bit more information than I do.

But, someone will come back and say, but look at our fancy mathematics! Our models, our models!! They are logical proofs!!!

Well so what. If I stated, “poison always kills people, all oranges are poisonous, if a human eats an orange, he will die,” this is a logically sound stupid argument. It may work in the model, but it is not true

I’ll take the slug!

Monetary Madness

Aristotle, you may have heard of him. He is an old dude.

Okay, so that is Socrates with Bill and Ted, but, come on, if you are going to post a toga-wearing- Greek-philosopher, this is it. Plus, you have another excuse to say So-Crates in "valley" speak. Your Sunday is complete. You're welcome.

But back to Aristotle, he was a Greek philosopher and is credited with establishing the study of formal logic. Let’s just say, he is kind of a big deal. He also defined money. Accordingly, money has four characteristics. Money is:

1.)durable, it has to stand up to wear and tear. You don’t want to use something that can rot. You can't amass a fortune in bananas.

2.)portable, a high amount of worth relative to its weight. You don’t want to have to carry around a ton of steel to purchase a chicken.

3.)divisible, it should be relatively easy to separate or recombine. A diamond meets the first two criteria, but if you start cutting it up, the value decreases rapidly.

4.)intrinsically valuable. It should have value beyond its use as a currency.

Historically, gold has best met all of the above and is the reason it has been selected by the market as the supreme form of money. Here are some examples:

Another historical currency is tobacco. It is not the most durable, but then, how durable is paper? Tobacco does not have the same status as gold, but it was voluntarily accepted as money. Actually, it still is. Think of our prison system!

This brings me to the point of my post. Our current monetary system is not based on voluntary acceptance, but instead governmental fiat. (The dollar is so good, they write laws forcing you to accept it. Gold is so bad, they write laws preventing you from using it.)

Yep, America’s prison system has a more legitimate currency than the US.

King Arthur:  I am your king!
Woman:  Well I didn't vote for you!
King Arthur:  You don't vote for kings.
Woman:  Well how'd you become king then?
Angelic music plays...
King Arthur:  The Lady of the Lake, her arm clad in the purest shimmering samite, held aloft Excalibur from the bosom of the water, signifying by divine providence that I, Arthur, was to carry Excalibur. That is why I am your king!
Dennis:  Listen, strange women lying in ponds distributing swords is no basis for a system of government! Supreme executive power derives from a mandate from the masses, not from some farcical aquatic ceremony!
King Arthur:  Be quiet!
Dennis:  You can't expect to wield supreme excutive power just because some watery tart threw a sword at you.
King Arthur:  Shut up!
Dennis:  I mean if I went 'round saying I was an emperor just because some moistened bint had lobbed a scimitar at me, they'd put me away.
King Arthur:  Shut up! Will you shut up!
Dennis:  Ah! Now we see the violence inherent in the system.
King Arthur:  Will you shut up!
Dennis:  See the violence inherent in the system! Help! Help! I'm being repressed!

I know. I know. The character in Monty Python and the Holy Grail was an anarcho-syndicalist. And this an anarcho-capitalist blog.  Sue me. Just make sure it is in a legitimate court system. You may be waiting a long time…

I created this blog to be entertaining, to sharpen my writing, to help organize my thoughts, to point out the absurdity of structuring society on violence, and, possibly, generate some income.  

As I look out at the current political landscape I am both frightened and encouraged. Throughout my life I have been told I live in a free country. That America is a classless society, a republic and that our government is limited. A civilization based on laws not of men.

I could continue to slave away and maintain cognitive dissonance, but it is not my style. I ask too many questions. Yes, like Dennis, we are being repressed!

I am encouraged because I believe we are going through another reformation. Similar to the Gutenberg Press, which allowed for greater access to information, the internet is giving everyone a platform. The gatekeepers are still there, but there are no more walls. Laugh at them, mock them, and just walk around them.