Links from last week

1. Falkenblog presents a business cycle theory based on mimicry. Basically, in every boom there are entrepreneurs who know how to make money and then other overconfident entrepreneurs who are merely copying some measurable quality of these entrepreneurs.  Each time, the traits being copied are somewhat different, and because these qualities have worked in the past it means that quantitative investors can "prove" what they are investing in will work (Housing prices never go down!). At the same time the differences in each cycle make sure economic models will not correctly predict how the cycle will play out.  It will be a very good framework for thinking about things during the next boom. Read the whole thing.

2. Robin Hansen provides reasons for an ambitious person to be somewhat overconfident if they want to be an executive. He doesn't think he is doing this, but it is the conclusion that I reach from reading the data he provides. CEOs, doctors and lawyers are all overconfident, so these are probably useful signals to send if joining their ranks is a personal goal. Along the same lines, this is why people in finance are inflationary because they do not make money in a deflationary environment.

3. Macroblog notes that the correlation between median CPI & the M2 is back.  He also has a post up discussing the interest paid on excess reserves. First, he notes that because the interest paid is small it didn't effect the choice between deciding to accumulate reserves vs. lend to the private sector by very much. Towards the end of the article, he notes that paying interest on excess reserves is to make sure that banks hold more reserves so that the payment system runs efficiently.  This contradiction is a little confusing to me. Regardless, the point in the middle of the post about a zero interest rate on reserves being unlikely because this would interfere with the liquidity of the money market market is interesting because it highlights that many of the more unique propositions like setting a slightly negative interest on reserves to encourage lending are beyond the pale at this point.

4. Starcraft 2 came out this past week. Rather than discuss whether or not it is a good idea to bet against South Korea of the performance of the US tech sector for the next quarter, I'll point you to this comic.