Monthly Archives: September 2006

A Wind Power Giant Arises in India

Posted on by

Michael Giberson

From the New York Times:

Suzlon has expanded rapidly as global demand for wind energy has taken off. Its sales and earnings tripled in the quarter ended June 30, as the company earned the equivalent of $41.6 million on sales of $202.4 million.

The demand for wind turbines has particularly accelerated in India, where installations rose nearly 48 percent last year, and in China, where they rose 65 percent, although from a lower base. Wind farms are starting to dot the coastline of east-central China and the southern tip of India, as well as scattered mesas and hills across central India and even Inner Mongolia.

The story also provides some insights about the perils and benefits of setting up wind turbines in rural India and the challenges of trying to serve the rapidly growning demand for energy in China.

The Sports Economist on Freakonomics vs. Moneyball

Posted on by

Michael Giberson

At The Sports Economist, David Berri uses the occasion of a brief Business Week piece, “Freakonomics vs. Moneyball” to draw further attention to an article by Jahn K. Hakes and (Sports Economist blog-founder) Skip Sauer that appeared in this summer’s edition of the Journal of Economic Perspectives. In the article, Hakes and Sauer find econometric support for a bit of analysis key to the Moneyball story: that a batter’s “on base percentage” was undervalued in baseball labor market. Hakes and Sauer also conclude that the undervaluation of OBP diminished after the book was published.

As Berri notes, this isn’t just an article about sports, or a sports book, but about labor markets and economics, too.

The on-line Business Week story is limited to subscribers, as is the JEP article. You can find earlier versions of the Hakes and Sauer article online by searching for “An Economic Evaluation of the Moneyball Hypothesis.”

Teamgeist Ball No Nightmare for MLS Goalkeepers

Posted on by

Michael Giberson

100_1006655.jpgIn a follow-up to my World Cup posting comparing hype and data on the new Adidas Teamgeist soccer ball design, I’ve taken another look at the Major League Soccer data. You may recall that the new ball was supposed to be a striker’s dream and a goalkeeper’s nightmare. In fact, the Washington Post had quoted DC United goalkeeper Troy Perkins saying exactly that about the new ball: “a nightmare, an absolute nightmare.”

The World Cup data didn’t reveal a scoring boom. I wrote in July:

But the numbers generated by the 62 games played so far suggest little effect on overall performance. There have been 1458 shots taken in the 2006 tournament so far, of which 674 have been on target (46.2 percent). Goalkeepers have recorded 474 saves, amounting to just over 70 percent of shots on target.

Compare those numbers to the results through the 64 games of the 2002 World Cup: a total of 1423 shots, of which 689 were on target (48.4 percent). Goalkeepers made 451 saves, which constitutes about 65 percent of shots on target.

Average goals per game are down as well, dropping to 2.23 goals in 2006 so far compared to 2.51 per game in 2002.

So, with MLS teams now having played 29 games each with the new ball, how’s that nightmare going?

To date in 2006, both the average number of shots and the average number of shots on goal per game are down slightly in MLS games. The percentage of shots that produce a goal has fallen just a bit, too. The average number of goals per game has fallen about 12 percent, from 2.87 in 2005 to 2.53 in 2006. I don’t have complete goalkeeping stats handy, but comparing 2006 to 2005 league leaders for saves as a percent of shots on goal suggests that saves percentages are up from last year in the MLS.

It would be useful to look back more than one year, and also to analyze the numbers more carefully, but in any case it sure isn’t obvious that the ball has made life more miserable for the league’s goalkeepers.

And how about Troy “absolute nightmare� Perkins? He’s leading the league with a 1.11 Goals Against Average.

NOTE: I failed to notice when posting the picture above that the ball in the picture is an “official replica” Adidas Teamgeist ball, rather than the true, new, high tech ball used in World Cup and MLS this year. A little inspection of the picture reveals the familiar hexagon and pentagon patterns of the typical 26-panel soccer ball. Wikipedia has more on the ball. (The Encyclopedia Brittancia online seems not to have an entry on it.)

Warsh on An Engine, Not a Camera

Posted on by

Michael Giberson

Like David Warsh, I have been reading Donald McKenzie’s book, An Engine, Not a Camera: How Financial Models Shape Markets. Warsh locates it in comparison to William Poundstone’s book Fortune’s Formula and Perry Mehrling’s biography of Fischer Black, but in many respects it reminds me of nothing so much as Warsh’s own Knowledge and the Wealth of Nations. Only instead of growth theory, McKenzie takes on the story of the rise of finance theory in academia and, particularly, in financial practice.

As Warsh reports, you have to wade through a bit of philosophical musing to get to the finance story. Personally, I like it and it seems appropriate to a book so directly focused on the interactions between theory and practice. Your mileage may vary. But, as Warsh says, “Never mind. To a dedicated reader, the philosophizing is no worse than a heavy accent. There are wonderful stories here….”

I’m only about half way through the book. I may post again once I am done, but I’m a slow reader and Warsh’s column is excuse enough for me to recommend this book to anyone who is at all curious about the performance of financial markets or the interaction between economic theory and society.

Why anxiety? The NYT Editorializes for Hedge Fund Regulation

Posted on by

Michael Giberson

Predictably, in the wake of the Amaranth blow up that became public last week, a few politicians and editorialists are calling for increasing regulation of investment pools. The New York Times, despite laying out a few of the salient facts in the editorial itself and having access to other pertinent information in the newspaper’s own articles of last week, concludes “regulators need to act now to translate their various calls for hedge-fund oversight into enforceable rules and, in some instances, into concrete proposals for Congress to enact.�?

Facts from the editorial: Amaranth lost $6 billion. Amaranth is only one of 9,000 investment pools. These investment pools manage an estimated $1.2 trillion in assets.

Reported in the Times last week: “Even as Amaranth Advisors lost billions of dollars … more fortunate traders raked in big profits.�?

Do the math: $6 billion divided by $1.2 trillion = one half of one percent.

So, the most newsworthy investment pool “meltdown�? (as the Times editorial calls it) involves an estimated one half of one percent of all the money held in investment pools by wealthy investors, banks and pension funds, and some fraction of the money just flowed into other investment pools. (Not one half of one percent of all of their investments, just one half of one percent of money put into higher-risk-hoping-for-higher-returns investment pools.)

The Times worries that markets could be vulnerable to a “debilitating chain reaction�? should Amaranth have had to default on borrowed funds. While the losses at Amaranth will likely trouble a few people for a while – perhaps that 32-year old trader will lose his Ferrari – this just doesn’t seem to be a reason for much public consternation, much less public policy reform.

The Washington Post, to my surprise, reached a reasonable conclusion when it editorialized on the Amaranth losses:

Regulators deserve credit for pushing banks to limit their exposure to hedge funds. … But it’s equally important to praise regulators for what they haven’t regulated, since freewheeling hedge funds do a lot to stabilize the financial system. Because they can invest in anything and can bet on declines in prices as well as increases, hedge funds scour the world for illogically priced assets, and their buying or selling moves prices to a rational level. …. Mutual funds, which don’t bet against the market and which mainly aim for average performance, contribute far less to this process of price discovery, which allocates the world’s savings to the countries, companies and individuals who are likely to use it best.

Least Surprising Sentence in Today’s Washington Post

Posted on by

Michael Giberson

The e-mails show that, in the bureaucracy that serves Fairfax’s 1.1 million residents, a change in policy can have unintended results.

Fairfax County, in an effort to weed out unneeded cars from the county’s fleet, targeted cars recording fewer than 4,500 miles per year of use. As the story relates, county employees were creative in finding ways to avoid losing use of county vehicles. Management was apparently shocked that employees would go out of their way to run up miles for vehicles close to the 4,500 mile limit.

Inter-Agency Task Force Misses Energy Policy Act Deadline

Posted on by

Michael Giberson

More than a month has gone by since the one-year anniversary of the 2005 Energy Policy Act, which means that the final report to Congress of the five member inter-agency Electric Energy Market Competition Task Force is more than a month past due. The task force, composed of staffers from the Department of Justice, the Federal Energy Regulatory Commission, the Federal Trade Commission, the Department of Energy, and the Department of Agriculture, was due to deliver to Congress a report on competition in wholesale and retail markets for electricity in the United States.

Normally such a lapse would be of little interest to any but a select few, and maybe that’s the case here, too. But in this case, because Lynne and I wrote a comment on the draft released in June, I’ve been looking for the final version. With five agencies to approve the final product before it goes to Congress, likely it is held up by a senior administrator at one of the agencies who has some minor quibble with the penultimate draft. I don’t know which agency (or agencies) is responsible for the delay, but if you care to traffic in facts and/or rumor please feel free to comment.

For more background, see our posts with an initial note on the draft report, a fuller description, and a discussion of some of the other comments filed in response to the draft. You can join me in the EEMCTF Final Report Watch by occasionally checking here (FERC) or here (DOJ) or here (DOE) or here (Ag) or here (FTC).

California’s Dedication to Efficiency and Conservation, II

Posted on by

Michael Giberson

In a follow up to my post earlier in the week, I noticed this headline from the Contra Costa Times, “Utilities fall behind on green goals: State officials admit report showing conservation, use of renewable resources not on track is troublesome.” Not that California state officials aren’t dedicated, but perhaps more than dedication on the part of state officials is required for success.

(Via Energy Central – reg. required).

Un-hedged Hedge Fund Becomes Unhinged

Posted on by

Michael Giberson

Washington Post graphicSpeaking of “hedge” funds, how about those folks at Amaranth Advisors LLC? As of a few weeks ago, they were up to about $9 billion in assets. One 32-year old trader alone was up $2 billion for the year. Who are these financial wizards? From the Amaranth web site:

Amaranth’s investment professionals deploy capital in a broad spectrum of alternative investment and trading strategies in a highly disciplined, risk-controlled manner. Our ability to effectively pursue a variety of investment strategies combined with the depth and strategic integration of our equity, credit and quantitative teams … are some of the key strengths that distinguish and define Amaranth.

At one time, those claims may have been true, but that was before their traders started making all that money in natural gas. As now described in numerous newspaper stories, on Monday Amaranth disclosed that “a disastrous bet on natural gas prices had produced losses of more than $3 billion” (New York Times). “The funds had been up about 26% through August, according to Bloomberg News” (USA Today), but were “down 35 percent for the year after the sell-off.” (Washington Post).

As a commenter noted on investment opinion site Seeking Alpha, “This must be a form of highly disciplined risk control that I am unfamiliar with, as it allows a fund to lose 45% of its assets in 2 weeks.” Or, as yesterday’s New York Times article noted dryly, “‘multistrategy’ seems to have been a misnomer at the fund.”

Animal Spirits in Crude Oil Markets

Posted on by

Michael Giberson

Still, the rise in oil prices from an average of $28 in 2003 has made commodity traders far superior performers than investors in the stock market. And for a while, that performance encouraged even more investors to pour even more money into oil futures.

Now some of the traders themselves wonder if they will drive prices too low by selling off once-profitable positions that are turning sour.

“On the way up, there is buying greed,� said Gary Pokoik, who manages Hedge Ventures Energy, a Los Angeles hedge fund. “And on the way down there is a selling panic. The drop could snowball.�

From the New York Times, “ Oil’s Rout Outpaces Its Advance.” And, by the way, what’s with these “hedge funds” making big bets on price movements? The Times: “Mr. Pokoik said that his modest-size fund, about $40 million, was tilted 70 percent toward long positions in energy stocks only two weeks ago, expecting prices to rise again.” Sounds like speculation to me.