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Third derivatives is the new green

by Jerome a Paris Tue May 5th, 2009 at 05:25:16 AM EST

There have been a lot - a lot! - of articles lately about "green sprouts", ie signs that the economy seems to be faring less horribly than a couple of months ago. A recent exemple of this "the worst is behind us, we can move forward" is this fullpager in the FT: "Optimism Builds. The underlying message, of course is: that sorry episode of crisis is behind us, we can go back to (almost) normal, let's drop all that silly talk about taxes and regulation.

But when you look at what people are cheering, you see the graph on the right: a pick up from the doldrums, at levels much lower than just a year ago. Or you have this:

The S&P Case Shiller house price index of the 20 biggest US cities has fallen for 30 consecutive months. February was the first time since October 2007 that the index did not report record annual price drops.

(...)

Elsewhere anecdotal evidence also suggests that the steep declines in discretionary spending seen in the fourth quarter have moderated

(...)

The official figure for first-quarter growth [in China] of 6.1 per cent fell from 6.8 per cent in the fourth quarter. Independent estimates, however, suggest sequential growth picked up from 1-2 per cent in the fourth quarter to about 5 per cent in the first quarter.

We're talking about the growth rate increasing from very low (in most places other than China, from very negative to slightly less negative). As I noted a while ago, growth is a second derivative (ie an acceleration) of economic wealth. So we're talking about the variation of growth, ie the third derivative, being positive. In other words, the deceleration is slowly. Another way to look at this is freefall: you fall down at an acceleration of 'g.' Air resistance will slow your downwards acceleration until you've reached a maximum speed, meaning that your negative acceleration climps up to zero: thereby qualifying for green sprout. A still falling green sprout, but a green sprout.

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Third derivatives is the new green | 12 comments (12 topical, 0 editorial, 0 hidden)
Like I said while you were on holiday... (4.00 / 2)
European Tribune - Comments - Third derivatives is the new green
Another way to look at this is freefall: you fall down at an acceleration of 'g.' Air resistance will slow your downwards acceleration until you've reached a maximum speed, meaning that your negative acceleration climps up to zero: thereby qualifying for green sprout. A still falling green sprout, but a green sprout.
Migeru:
So, Summers says that we should reach terminal velocity in a few months and the market thinks this justifies a raly now?


Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Tue May 5th, 2009 at 05:46:30 AM EST
Re: Like I said while you were on holiday... (none / 0)
yes, I saw that. I thought it was worth revisiting and emphasising, as euphoria seems to have gripped financial markets...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 5th, 2009 at 06:24:00 AM EST
[ Parent ]
Re: Like I said while you were on holiday... (none / 1)
Dow 12-month:

Yee haa.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 5th, 2009 at 06:32:37 AM EST
[ Parent ]
Re: Like I said while you were on holiday... (none / 1)
When politicians believe that their job is to improve confidence, they are all too happy to celebrate "inflection points".

It used to be that "touching bottom" was the good news. Things must be really bad when "slowing down the fall" is the good news.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Tue May 5th, 2009 at 06:34:23 AM EST
[ Parent ]
Re: Like I said while you were on holiday... (4.00 / 4)
Yet to suppose that President Hoover was engaged only in organizing further reassurance is to do him a serious injustice. He was also conducting one of the oldest, most important - and, unhappily, one of the least understood - rites in American life. This is the rite of the meeting which is called not to do business but to do no business. It is a rite which is still much practised in our time. It is worth examining for a moment.

Men meet together for many reasons in the course of business. They need to instruct or persuade each other. They must agree on a course of action. They find thinking in public more productive or less painful than thinking in private. But there are at least as many reasons for meetings to transact no business. Meetings are held because men seek companionship or, at a minimum, wish to escape the tedium of solitary duties. They yearn for the prestige which accrues to the man who presides over meetings, and this leads them to convoke assemblages over which they can preside. Finally, there is the meeting which is called not because there is business to be done, but because it is necessary to create the impression that business is being done. Such meetings are more than a substitute for action. They are widely regarded as action.

The fact that no business is transacted at a no-business meeting is normally not a serious cause of embarrassment to those attending.

- J.K. Galbraith, The Great Crash of 1929

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 5th, 2009 at 08:15:14 AM EST
[ Parent ]
Re: Like I said while you were on holiday... (none / 1)
Classic.

But, allegedly, "not economics".

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Tue May 5th, 2009 at 08:17:33 AM EST
[ Parent ]
Re: Like I said while you were on holiday... (none / 1)
Of course it isn't. It's psychology. And psychology can't be allowed into the hallowed halls of economics. Too many precious axioms would be yanked away, and too many (financially powerful) emperors would find themselves uncomfortable in their nakedness...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 5th, 2009 at 09:59:36 AM EST
[ Parent ]
Re: Like I said while you were on holiday... (none / 0)
http://www.behaviouralfinance.net/

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Tue May 5th, 2009 at 11:29:47 AM EST
[ Parent ]
Re: Like I said while you were on holiday... (none / 1)
That politicians believe that their job is to Improve confidence just shows how much the markets are in control.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Tue May 5th, 2009 at 08:31:24 AM EST
[ Parent ]
Signs of "green" (none / 1)

CDS on US financials were in the mid-double digits before the crisis, so 945 is very relative progress (but it is true that it is less insanely high than the worst number that was ever reached during the crisis)

LIBOR-OIS spread was close to 10 at most times before this crisis, so its still 10-20 times worse than normal...even if it's less than, again, the worst ever

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue May 5th, 2009 at 06:29:49 AM EST
See also (none / 1)
Measuring Progress by nanne

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 5th, 2009 at 06:30:56 AM EST
Re: Third derivatives is the new green (none / 0)
The technology boom proved to be, in significant amount, hot air (Please note that I'm not referring to the lang-term impacts of technology.  I'm referring to the speculative boom that used tech as cover.).  The financial boom proved to be the same.  Now we have a new "boom" (really an "anti-bust") that appears to be nothing but puff and pump from the start.

As for the BDI "recovery", it's still bumping along at 1900, a lot of that "recovery" seems to be from stockpiling not production demand, and there are piles of new ships launching this year and not enough breaking yards or lay-up spaces to take much capacity back out, so expect it to stay weak.

by rifek on Tue May 5th, 2009 at 08:35:54 PM EST
Third derivatives is the new green | 12 comments (12 topical, 0 editorial, 0 hidden)


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