Friday, January 09, 2009

A History Lesson

Having grown up in the United States but spent virtually all of his adult life outside the land of his birth, Macro Man has had the opportunity to observe different theories of education at close quarters. Indeed, with two children in school, he is now at the coal-face, so to speak; in the UK his kids have been taught cursive handwriting at an age when he himself was doing colouring in pre-school.

What has always struck him as peculiar about the UK educational system is the degree of specialization that it instills at a farcically early age; by their mid-teens, secondary school students have to tailor their studies to ensure acceptance to university for a pre-destined course of study. While this generates a very high degree of ability at the secondary and university level, it leaves a lot of gaps. The American system, on the other hand, tends to be broader and shallower...spending less time studying more things. There is also a great deal more flexibility in the US system of higher education, where students don't have to finalize a course of study until the end of their second year.

Macro Man himself is a graduate of a fine liberal arts university, where he was required to take courses in a broad range of subjects. In doing so, he discovered a passion for history, which he adopted as a second major to ensure entry into interesting-looking courses. To this day, much of his leisure reading tends to be about historical arcana.

In any event, his passion for history is coming in useful these days, as market and macro headlines offer up a history lesson virtually every day. One story circulating recently, for example, suggested that yesterday's equity price action was vital, because the market direction in the first five days of Janury almost always dictates the direction for the entire year. Thus, the fortunes of the next 11.8 months were dependent on whether or not the SPX could hold 903.25 or not. Macro Man decided to check on this; while there does appear to be a decent relationship, it is far from infallible. Since 1951, the direction of the first five days mirror the returns for the year as a whole 69% of the time; a decent strike rate, but close to random than infallible. A quick glance at the chart below suggests that as recently as 2002, a decent start to the year was followed by a shocker.
Meanwhile, macro data and policy decisions are reaching historical extremes with eye-raising regularity. German manufacturing orders have collapsed to easily their worst rate of change since unification. The outlook for industrial production is correspondingly grim. Meanwhile, the German government announced yesterday that is taking over part of Commerzbank, which itself is trying to digest Dresdner. Good thing there's no credit crisis, eh?

What is amusing/bemusing is that with all the focus and questioning on how the US will finance its fiscal deficit, it was Germany that had a failed bond auction this week, as they were only bid on 87% of the offering size. Bid to cover on the US 10 year auction, meanwhile, was 2.5. Food for thought with respect to the euro, for sure.
The headliner today is of course the US employment report, the last to be released before the new president takes office. Wednesday's ADP report not only put an abrupt halt to the equity rally, but it also raised the spectre of a one-in-a-lifetime poor payroll figure. While consensus looks for job losses of 525k, Macro Man reckons that something close to 650-700k will be the average of all the office pools today. Indeed, some are mumbling about the chances of a million job losses! Anything close to that would be the second worst outcome in the history of the non-farm payroll report, with the worst coming in September 1945 after the US de-militarized following the war.
For choice, Macro Man would suggest that the number may not be as bad as feared in some quarters, though a seven handle on the unemployment rate seems like a given. But the random nature of the monthly payroll figure makes it anyone's guess- well, anyone's but Macro Man's; in a career that started in 1993, he has never won a monthly payroll sweep.

Finally, the Bank of England cut rates to an all time low of 1.50% yesterday. While it's true that Fed funds are also at an all time low, the BOE is a truly venerable institution, while there are plenty of people alive today who are older than the Federal Reserve.

The BOE was chartered during the reign of William and Mary, pictured wonders if they had a tracker mortgage?
In any event, the activism of the BOE is to be applauded; after all, this is an institution that once left rates unchanged for 103 years (1719-1822.) And you though Easy Al's "considerable period" was a long time.......


Anonymous said...

On of the problems the US has to address in making a value add economy for the 21st Century is that the nation seems to be semi-literate. Perhaps, its time for a return to a more classical educational theory.

Macro Man said...

Sorry, is that the US or UK? The thing about the US system is that you get out of it what you put into it....which I personally don't have a problem with.

Anonymous said...

Ah, you could have added that this was the first time in its long history that the BoE dropped rates below 2%.

Manc Trader said...

I went to a top US liberal arts school as well and found the core curriculum of western philospohpy and literature by far the most valuable to my career as a trader.

I am shocked that even top college students here in UK don't even know who someone like David Hulme is. How is that possible.
ALso the constant dumbing down of the UK system means that high degree of specialization that you talk about is no longer true.
I was placed out of a years worth of chem, physics, and calculus purely because of the superiority of A levels but I doubt that holds today.

Charles Butler said...

Germany's position of selling the eurozone reference bond to fill their own coffers is coming back to haunt. ECB rates, locally suboptimal during the boom, are now universally so - except in Steinbrueck's mind where inflation looms behind every lamp post. How many times are they going to let this guy shoot himself in the foot?

Classical education theory in Britain? How about the 30-something year old, university educated Scot that I tried to teach some Spanish to. I innocently figured that we could find common ground through the parts of speech. He'd never been taught them.

Anonymous said...

Manc Trader: David Hulme? Not David Hume?

Manc Trader said...

lol need that embarassed smiley.

Damcanu said...

I went to a terrible Welsh Comprehensive school in the 80's. Not long after I left I noticed it was third from bottom in the Comp. school performance league tables.

I see myself as one of the lucky ones from that school, I was never in trouble with the Police and I left with a couple of O'levels which got me a Mech. apprenticeship and with it, further education.

I never really learnt anything in school and whatever I do now know (which is not a lot compared to you MM and your blog readers) I put it down to my love of reading, since leaving school.

vlade said...

Re the auctions - my question is, what used to be coverage for Germans before, and what used to be the coverage for treasuries? If bunds dropped from say 1.2 coverage to 0.8, and Treasuries from 4 to 2.5, which is worse?

Manc Trader said...

Talking about history MM what did you think of the whole Niall "Chimerica" Ferguson Ascent of Money documentary.
Other "non financial" members of my family found it quite interesting.

He just seems so commericial. It appears he is now entering the video game market with some kind of history simulation war game thing.

Anonymous said...

..."it was Germany that had a failed bond auction this week, as they were only bid on 87% of the offering size. Bid to cover on the US 10 year auction, meanwhile, was 2.5. Food for thought....Yes, Germany has sensible savers and those buying the 10yr are idiots.

Anonymous said...

Hear hear, Damcanu, education is a lifelong pursuit. Agreed that early forced specialisation is ridiculous, would prefer the IB system instead. Policy is just a shambles here. Also think that there is a surfeit of pessimism returning, esp re nfp, but content to wait for price action. At least the rest of the EUs auctions went ok yesterday.
Cheers, JL

Mr Risk said...

It's a bit clearer than 903 in the S&P cash as to direction of the first five days.

Look at other leading benchmarks, global equities and leading stocks... they all posted gains and no question higher than when the year ended. Commodities as well.

Begs the question, what's weighing down the spoos.

Macro Man said...

Manc, I had high hopes for NF's series but was disappointed. Three reasons: 1) I already knew most of what he said, which I suppose isn't a total shock given that I am a finance guy and a history guy; 2) The production itself was irritating...the fact that he popped up every three minutes in a different country made the whole thing look like one giant boondoggle; and 3) those bloody Cayman island ads which popped up every 5 minutes.

I much preferred the Bremner Bird and Fortune series on a Sunday night, which was on about the same time.

vlade, I don't know the time series on bid/covers, but I do know that it was the first German failure since 2000, so it ain't exactly good news.

anon @ 12.14, you do realize that people other than German savers can participate (or not,as the case may be) in Bund auctions, right?

Anonymous said...

haha, I thought the Cayman sponsorship was quite telling. His book is better, but not by a whole load. I wonder what kind of value GLG get out of him?

Macro Man said...

It seems safe to posit "not much" given events after they took him on as an advisor.

Manc Trader said...

On the S&P prediction using first five days past performance has to be compared to the probability of the full year return condioned on the move of the first five days.
Many years ago people used to use the full month and I think it was Victor Niederhoffer who exposed the fallacy of the argument in Practical Speculation.
Also have to factor in a drift so up moves are more likely to be follwed by an up year anyway.

Damcanu said...

Yesterdays SPX e-mini's Globex high has been taken out after 'good' NFP news.

Very interesting to see if today's SPX end's up positive after yesterday's low volume (possible) test day. If so, maybe we will see SPX 1000 or 1050 before Obama's big day.

Anonymous said...

someone wrote:
"I went to a top US liberal arts school as well and found the core curriculum of western philospohpy and literature by far the most valuable to my career as a trader."

The culture of western philosophy and literature is like most christian civilisation largely european and british, liberal arts in the US originally aped the British institutions and then as standards were abandoned became the mismash they are now. It is still the case, that the best sort of education you describe is from a UK public school and Oxbridge.
PPE from Oxford exemplifies this.

Macro Man said...

PPE is basically the same course that I did in public policy. But two years in, I also had the chance to do history as well. Good luck with that at Oxbridge.

Anonymous said...

and good luck to you with culture in the USA

Macro Man said...

...presumably as opposed to what passes for culture these days in Britain?

Anonymous said...

we still have a great liberal culture and so does the US however the antecedents of our liberal culture are part of our history unlike the US because your liberal culture comes from our history.
Enough, I'll let you have the last word if you like.
Other then to say that I read that the US's great contribution to the modern internet culture apart from bullying people towards them owning it is that 98% of the worlds porn comes from the US.

Anonymous said...

Literacy (esp. grammar) and constructing sentences that make sense, not really your forte, eh?

Anonymous said...

SPX seems to be playing out according to hoyle, with weakness the last 1/2 of pre option expiration week into the full moon weekend…..if the wacky world does not worsen by monday open the usual op-ex week blastoff seems to be set up…
march crude oil is up at 44.70 right now(+5 above feb contract), and gold doing a good job respecting it’s yearly chart by staying above 2007 close of 838


Anonymous said...

Anon - people like you are the reasons Brits (along with Japanese and more so than French) are deemed the most culturally arrogant people in the world. You think Britain never bullied anyone in its history? Boer War, China, North America? Lots of the problems in the Middle East are attributable to your fiascos

Anonymous said...

yes you have a point I'm just anti-american I'm afraid - they bring out the worst in me.

Anonymous said...

Interesting review of NF's Ascent of Money by Robert Skidelsky (via Paul Kedrosky's blog). I caught part 1 of the series on google video last week and then they took all the links to all the sections down before I could see the rest. The first one was pretty interesting from an historical perspective. NF's an entertainer as much as an historian!


Anonymous said...

Oops! Left the link to the review off:


Anonymous said...

Oh, and before I get jumped on for bad grammer, that should have been "a historian" rather that "an".

My Bad!


Shawn said...

I just laughed when the thought of education system between US and UK was brought up.

There is no doubt in my mind a professional career will pick UK system over USA of crap. Imagine 3rd workd country citizens already learned Calculus during high school , while in USA the children are only taught this high math level in University!

I guess what macro man implies is, it's great that USA children continue to play PS3/Wii while their competitors oversea are spending most of their nights studying science and maths.

USA truly does not deserve to be the world leader in education. The only reason USA can claim to have great University is MAINLY because of US Dollar being the world reserve currency, and life is good here that attract best brains, and plus Universities got tons of money (remember USD is the currency that make all these possible) to spend to attract people.

FYI, I have my bachelor Eng in England, and my Master in Eng in USA. Both first tier Universities.

If I were to employ Preofessional people, I would fire most USA fresh grad engineers and employ UK fresh grad in most professions -- Eng, Science, Accounting, etc. Heck, even Singapore and many asian fresh eng grad is better than USA crap who mostly don't do a big Thesis or project. I am talking about the Brain Power here. USA grads just filled with crap of years of PS3/Wii/football.

I am sure that's different for those artist or musician or movies writers. LOL!!

Anonymous said...

anon @ 433 - you'd be speaking German if it weren't for USofA so try to be a little more appreciative? Also, our culture is still a young one and a synthesis of many races and immigrant cultures (many of whom came over to escape British subjugation and maltreatment mind you), not just British culture.

Ferguson's Ascent of Money is mediocre at best; it's basically nothing new from the Cash Nexus and Bernstein's Remarkable Story of Rsk, both of which are much better works.

Macro Man said... let me get this straight. The only reason US universities are any good at all is because they have so much money. It raises an interesting question, doesn't it...where did the people who gave them all that money go to school?

Hey, I have no doubt that there are plenty of people in the UK, Asia and elsewhere do nothing but stay up all night studying science and math. Which means that there is an entire sphere of knowledge of which they are utterly ignorant.

In my university career I read Balzac in French and Marquez in English, studied calculus and statistics, wrote papers about the persecution of Cathars in 13th century France, Polish privatization, and a cost/benefit analysis of deforestation in Indonesia.

All of this was geared to teach me and other students how to think. This, I have found, has been a broadly useful skill throughout my career.

Anonymous said...

appreciative of what?
Sub Prime?
Hip Hop?
Apple Pie?

Anonymous said...

Appreciative of

Microsoft Excel
Microsoft OS
Sun Workstation
Intel pentium chips
The Internet

Basically everything you are using right now for your job in you are in finance. All of which is produced by the "soft" and unspecialized US system of education. What modern innovations has Britain produced the last couple decades with its highly specialized and technical educational system?

Anonymous said...

A new year's resolution that some of those posting comments here ought to heed:

Shawn said...

"where did the people who gave them all that money go to school?"

again, this goes back to the fundamentals. USD being the world reserve currency (due to historically industrial revolution plus smart earlier generations) is the #1 factor here that the economy is prosperous despite all these years of deficits. Plus USA has plenty of natural resources and flat lands.

But this does not add to the arguement of USA brain power, since FACTs say the education system here sucks.

Ask youself a question. How many grad students (master + phd) in Science, Eng are American born?

If learning shallow things pleases you and if that can make America an Advanced country, you are defntiely the majority of Americans.

Let's just party.

FYI, have you noticed many those Flat TVs and gadgets (like watch embed with cell-phones) are coming from South Korea? Did you notice Hyundai is surging strongly in reliability?

Where was Korea 10 years ago in Asian Financial Crisis?

Yes, shallow knowledge pleases American. Actually, it pleases most people esp if they cannot think deeply a problem, sit in front of desk for 8 hours straight to resolve a problem. That's really un-pleasing, isn't it? PS3/Football is the ENTITLEMENT to american kids!

So, repeat after me, Most USA Universities are crap. It's mostly about money.

Shawn said...

""What modern innovations has Britain produced the last couple decades with its highly specialized and technical educational system?"

You get the whole thing backward.

Better question: Who produced these things? Or, what percentage of innovations comes from American born educated people?

England cannot re-surge mainly because of Economics. crowded small island, high standard of livings, aging populations etc.

When evaluating Education system, my criteria is what has that education system prepared their people to compete Globally.

American Education fail miserably. You have not seen the consequence, but it is showing up slowly but durely. you don't change or loss the education system 1 night, but across decades.

America is leader today simply because of its economy -- young and growing propulation, USD currency, plenty of resources and land. Definitely not because of its education system or the brain power it creates. Most Master/PhDs I seen are foreign students.

Macro Man said...

Shawn, if you truly believe that reading literature, philosophy, and history is "shallow"...well, then you are a sad little person, and I truly feel sorry for you.

Christian said...

Yawn... Another round of predictable Anglo-American tit for tat then?

Ian said...

"have you noticed many those Flat TVs and gadgets (like watch embed with cell-phones) are coming from South Korea? Did you notice Hyundai is surging strongly in reliability?"

Taken a look at Korean, Taiwanese, or Chinese export growth figures lately? Consumer electronics is not exactly the commanding heights of the global economy.

Anonymous said...

This is an atypically lousy comment thread, Macro Man. Really, what's the point of responding to internet anti-Americans anyway? Other than for playing kick-the-troll, I mean. What a deranged bunch of people.

Anonymous said...

"If I were to employ Preofessional people, I would fire most USA fresh grad engineers and employ UK fresh grad in most professions -- Eng, Science, Accounting, etc."

Does this mean that you are not a manager? No position of authority?

Anonymous said...


Looks like more than a few here got up on the wrong side of the bed today ;-)

Fwiw, I'll side with those that feel a well-rounded education is most helpful (except, perhaps in highly technical fields). Also, I agree learning never stops.


Mr Risk said...


You have two English language degrees from UK?

Why all the hate of the American system? While living outside of the US and UK for years, I can definitely tell you the two education systems are the most sought after by young students around the world.

I personally know many who would choose the US over UK.

And Macroman is right. When I ask what is the most appealing thing about American education from foreign students, they inevitably say it is well rounded ("balanced") and open minded.

One very clear cultural difference is that Americans are in search for what they love in life when in college. You may think it's all about money, but the college experience in the United States is as much about learning and getting a great job as it is about growing up. You should try it.

Anonymous said...

"The thing about the US system is that you get out of it what you put into it....which I personally don't have a problem with."


Clearly something is wrong with the U.S. education system when a third of eighteen to twenty-four year olds can't find the Pacific Ocean on a map. That said, the U.S. (as a country with a lot of people) still has enough self-motivated students (with an an increasing percentage of those coming from overseas) to lead the world in a number of fields. I don't see countries like China making many contributions to fields like biotechnology (which seems almost certain to become one of the growth engines for the next several decades).

I don't think much of American "culture" (I was born there, so I get to criticize it :) ), but on the other hand, what has the rest of the world contributed lately as far as culture goes?

America is still the king (like a past-his-prime boxer) until somebody knocks it off the hill. China has a chance, but that will take at least two decades, and a lot of "correct" decisions from the Chinese leadership (something definitely against the odds).

Anonymous said...

I'd just like to say that, if it weren't for the Americans we'd more more likely to be speaking Russian rather than German.

HoosierDaddy said...

So MM, when the "must read" history of the crisis comes out where will it mark the origin of the Crisis in time and Space?

Bretton Woods 1944
Washington DC 1973 2001 2007
Beijing 1989 2003
New York City 1998 2001 2005
Suburban LA 2002
None of the above?

I suppose where you start the story is going to depend if the crisis is at its root about the dollar, Fed Interest Rate Policy, trade imbalances, Wall Street, or bad mortgages. My own take is the first 3 are the big story and mortgages were just the first thing to hit the wall (and in the process set in motion the Wall Street Meltdown).