Standing at the pick-and-mix counter in a sweetshop, only choosing the fizzy snakes

Iain Rowan’s letter in The Guardian:

Jacob Rees-Mogg justifies his opposition to gay marriage and abortion even in cases of rape on the basis of his firmly held Christian beliefs (Report, 7 September). Fine. One can admire people with principles based on profound belief. So where is his opposition to welfare cuts on the grounds that Jesus went out of his way to demonstrate his compassion for the poor and the lame, the lepers and the prostitutes? When Jesus says “blessed are the peacemakers”, how does that fit with Rees-Mogg’s record of consistently voting for military intervention? Where are his statements on debates about executive pay, reminding other MPs that it is easier for a camel to go through the eye of a needle than for a rich man to get into heaven? I’m confused: I thought being a committed Christian meant following the teachings and actions of Jesus, rather than standing at the pick-and-mix counter in a sweetshop, only choosing the fizzy snakes.



Warren Buffett wins $1M bet made a decade ago that the S&P 500 stock index would outperform hedge funds

American Enterprise Institute:

Specifically, Buffett offered to bet that over a ten-year period from January 1, 2008 to December 31, 2017, the S&P 500 index would outperform a portfolio of funds of hedge funds when performance is measured on a basis net of fees, costs and all expenses.

A lot of very smart people set out to do better than average in securities markets. Call them active investors. Their opposites, passive investors, will by definition do about average. In aggregate their positions will more or less approximate those of an index fund. Therefore, the balance of the universe—the active investors—must do about average as well. However, these investors will incur far greater costs. So, on balance, their aggregate results after these costs will be worse than those of the passive investors.

Costs skyrocket when large annual fees, large performance fees, and active trading costs are all added to the active investor’s equation. Funds of hedge funds accentuate this cost problem because their fees are superimposed on the large fees charged by the hedge funds in which the funds of funds are invested.

A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors. Investors, on average and over time, will do better with a low-cost index fund than with a group of funds of funds.


David Davis: “no-one pretended Brexit would be simple and easy”

In response to David Davis telling the House of Commons that “no-one pretended Brexit would be simple and easy”, a quick twitter round-up.

That feeling you have?  Yes, that’s despair.

House flippers triggered the US housing market crash, not poor subprime borrowers

Gwynn Guilford in Quartz:

The grim tale of America’s “subprime mortgage crisis” delivers one of those stinging moral slaps that Americans seem to favor in their histories. Poor people were reckless and stupid, banks got greedy. Layer in some Wall Street dark arts, and there you have it: a global financial crisis.

Dark arts notwithstanding, that’s not what really happened, though.

Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.

Analyzing a huge dataset of anonymous credit scores from Equifax, a credit reporting bureau, the economistsStefania Albanesi of the University of Pittsburgh, the University of Geneva’s Giacomo De Giorgi, and Jaromir Nosal of Boston College—found that the biggest growth of mortgage debt during the housing boom came from those with credit scores in the middle and top of the credit score distribution—and that these borrowers accounted for a disproportionate share of defaults.

As for those with low credit scores—the “subprime” borrowers who supposedly caused the crisis—their borrowing stayed virtually constant throughout the boom. And while it’s true that these types of borrowers usually default at relatively higher rates, they didn’t after the 2007 housing collapse. The lowest quartile in the credit score distribution accounted for 70% of foreclosures during the boom years, falling to just 35% during the crisis.


Friction burns

Flip Chart Fairy Tales:

As Frances says, there is something very nineteenth century about a focus on tariffs and free trade agreements. The UK economy in 2017 doesn’t work like that any more. It is no longer the workshop of the world. It is a section within a vast production line that stretches across Europe. Disrupting that will do severe damage to all its parts but it will be easier for the rest of the EU to repair its parts than it will be for us to repair ours. The more obstacles we put in the way of trade, the worse it will be. Whatever happens, this is going to cost us dearly.