Who

Karel Volckaert is a valuation specialist. He lives with his family in Gent, Belgium.

His interests include value & risk, public finance, and earth system science.

He rides a Cannon- dale Synapse 105, swears by Finnegans Wake and thirsts for a taste of Heitz Wine Cellars' 1974 Martha's Vineyard.

Nikolaas Bellens, a valuation specialist too, is addicted to observing and commenting on human behaviour. Focus is on the fault lines in financial markets, business, politics, sports...

The first principle of Political Economy

… that after eight weeks of induction into the elements of Political Economy, she had only yesterday been set right by a prattler three feet high, for returning to the question, ‘What is the first principle of this science?’ the absurd answer, ‘To do unto others as I would that they should do unto me.’

[...]

‘You don’t know,’ said Sissy, half crying, ‘what a stupid girl I am. All through school hours I make mistakes. Mr. and Mrs. M’Choakumchild call me up, over and over again, regularly to make mistakes. I can’t help them. They seem to come natural to me.’

‘Mr. and Mrs. M’Choakumchild never make any mistakes themselves, I suppose, Sissy?’

‘O no!’ she eagerly returned. ‘They know everything.’

‘Tell me some of your mistakes.’

‘I am almost ashamed,’ said Sissy, with reluctance. ‘But to-day, for instance, Mr. M’Choakumchild was explaining to us about Natural Prosperity.’

‘National, I think it must have been,’ observed Louisa.

‘Yes, it was. — But isn’t it the same?’ she timidly asked.

‘You had better say, National, as he said so,’ returned Louisa, with her dry reserve.

‘National Prosperity. And he said, Now, this schoolroom is a Nation. And in this nation, there are fifty millions of money. Isn’t this a prosperous nation? Girl number twenty, isn’t this a prosperous nation, and a’n't you in a thriving state?’

‘What did you say?’ asked Louisa.

‘Miss Louisa, I said I didn’t know. I thought I couldn’t know whether it was a prosperous nation or not, and whether I was in a thriving state or not, unless I knew who had got the money, and whether any of it was mine. But that had nothing to do with it. It was not in the figures at all,’ said Sissy, wiping her eyes.

‘That was a great mistake of yours,’ observed Louisa.

‘Yes, Miss Louisa, I know it was, now. Then Mr. M’Choakumchild said he would try me again. And he said, This schoolroom is an immense town, and in it there are a million of inhabitants, and only five-and-twenty are starved to death in the streets, in the course of a year. What is your remark on that proportion? And my remark was — for I couldn’t think of a better one — that I thought it must be just as hard upon those who were starved, whether the others were a million, or a million million. And that was wrong too.’

‘Of course it was.’

‘Then Mr. M’Choakumchild said he would try me once more. And he said, Here are the stutterings –’

‘Statistics,’ said Louisa.

‘Yes, Miss Louisa — they always remind me of stutterings, and that’s another of my mistakes — of accidents upon the sea. And I find (Mr. M’Choakumchild said) that in a given time a hundred thousand persons went to sea on long voyages, and only five hundred of them were drowned or burnt to death. What is the percentage? And I said, Miss;’ here Sissy fairly sobbed as confessing with extreme contrition to her greatest error; ‘I said it was nothing.’

‘Nothing, Sissy?’

‘Nothing, Miss — to the relations and friends of the people who were killed. I shalll never learn,’ said Sissy.

[from Charles Dickens (1854), Hard times -- For these times]

Momentum mops the floor with fundamentals

Patience and Profits

To bring these market inefficiencies to life, consider a simple experiment to gauge the relative performance of momentum and long-term investors. Both are assumed to follow a simple strategy: the speculator buys (sells) when prices have risen (fallen) in the previous period; the fundamentalist buys (sells) when prices are low (high) relative to fundamentals. Portfolios are evaluated and re-optimised on a monthly basis, based on a $1 initial stake. How would these strategies have fared historically? Charts 7 and 8 show cumulative returns to these strategies in the US and UK. They suggest a dramatic evolutionary pattern. The speculator’s $1 stake in US equities in 1880 would by 2009 have grown to over $50,000. The fundamentalist’s same $1 stake would have fallen to be worth around 11 cents. Impatience would have trumped patience by a factor of half a million.

This out-performance is mirrored in the UK, if less dramatically (Chart 8). Starting in 1920, the value of the speculator’s £1 stake would have risen to around £1.56, while the fundamentalists’ stake would have fallen to 32 pence. Momentum would have mopped the floor with fundamentals. The sheep would have defeated the goats.

In an evolutionary game, these profit profiles would alter the balance of investors. Impatient investors would have profited and thrived, while patient investors would have lost and died. Nature would have deselected the patience gene. As Keynes predicted, market inefficiencies would have supported the myopic and irrational at the expense of the solvency of the far-sighted.

Source: Andrew Haldane (2010),  Patience and finance, speech presented on 9 September 2010 at the Oxford China Business Forum, Beijing.

De belastingvermenigvuldiger

“Toon me dat van jou en ik toon je het mijne.” We horen het te weinig als het om financieel-economische modellen gaat. Of de overheid nu moet besparen of investeren, of ze de belastingen moet verhogen dan wel verlagen is géén princiepskwestie. Het is een rekenvraagstuk, met samengestelde speelgoedwerelden die cijfers vreten en een getal uitspuwen. De strijd wordt gestreden wanneer het model wordt gebouwd op de – misschien wankele – veronderstellingen van de econoom in kwestie. De uitkomst daarna aanvechten zijn vijgen na Pasen. → Read More

Fiscal policy and the Great Recession in the Euro Area

The following graphs are from a remarkably rich DSGE-model at the ECB, as presented March 2-3, 2012 at “Fiscal Policy in the Aftermath of the Financial Crisis”:

Source: Günter Coenen, Roland Straub, and Mathias Trabandt, Fiscal policy and the Great Recession in the Euro Area, mimeo and Working Paper No. 1429

De kleinkinderen van Keynes

Het einde van de geschiedenis is nabij. In een lezing uit 1928 die hij zijn hele leven hergebruikte, gaf Maynard Keynes het nog honderd jaar voor de absolute noden van de mensheid gelenigd werden. Tegen die tijd zou er voldoende kapitaal opgebouwd moeten zijn om de materiële levensstandaard op een permanent hoog plateau te brengen. Daarmee was het economische probleem opgelost – gesteld dat er geen al te verwoestende oorlogen gevoerd moesten worden, de bevolkingsgroei beperkt bleef, en wetenschap en techniek hun gang konden gaan. Maar de vierde voorwaarde trof de mens in ’t diepst van zijn gedachten. → Read More

Perverse noordzuidstromen [Addendum]

De Duitse centrale bank heeft ongeveer 500 miljard euro vorderingen uitstaan ten aanzien van de perifere eurolanden.

[Fout] → Read More

Perverse noordzuidstromen

De Duitse centrale bank heeft ongeveer 500 miljard euro vorderingen uitstaan ten aanzien van de perifere eurolanden. Duitsland financiert immers het tekort op de lopende rekening van die landen. Het eigen overschot op de lopende rekening wordt weerspiegeld in de activa die de Bundesbank tegoed heeft van de overige centrale banken in Europa. Als de periferie de boot in gaat, blijft Duitsland met al die onbetaalde schulden opgescheept. Omdat de Europese Centrale Bank de Bundesbank gebruikt om geld te lenen aan de Grieken e tutti quanti, dreigt de Buba bovendien te weinig geld in de financiering van de eigen KMO’s te kunnen pompen. → Read More

World Economic Forum Risks Landscape 2012

[World Economic Forum, Global Risks 2012]

Immanuel Kants kategorische imperatief

Wat was de vraag waarvan u vertrok?

I.K. Waarom gehoorzamen mensen aan morele wetten? Waarom zijn ze überhaupt in moraliteit geïnteresseerd?

Is dat niet eerder voer voor psychologen dan voor filosofen?

I.K. De psychologie, de praktische antropologie, de zedenleer gaat over het doen en laten van de mens en het moeilijke streven naar geluk. Een handleiding om gelukkig te worden bestaat niet, of hoogstens uit raadgevingen van ervaringsdeskundigen. Geluk is geen ideaal van het verstand maar van de verbeeldingskracht. → Read More

Beestengeesten

Paul De Grauwe heeft Keynes niet goed gelezen. Herman Van Rompuy evenmin. De OESO al helemaal niet. Animal spirits zijn géén golven van irrationeel optimisme en pessimisme. De term verwijst naar een spontane drang om te handelen eerder dan om niets te doen. Het is een ode aan ondernemerschap, die goedaardige anomalie. → Read More