19 December 2014

Peeing Into the Wind

Thanks to r-bloggers, thence this Revolution post, a skip to this post, finally to the posting on the "evils" of p-value. Yet again. Comments are closed, but between the piece and the pissing contest amongst the commenters it's a worthy source of the giggles.

One deborah mayo (no link) had this to say:
p-values are NOT likelihoods, however, they permit computations that Bayesian likelihoods alone cannot. They allow evaluating the probability that the testing procedure would have resulted in a less impressive departure (from the null) under the assumption the null is true, and also under the assumption of varying discrepancies from the null. It's a small part of the panoply of methods that use error probabilities. Guess what? Bayesians are the ones who only use likelihoods conditional on the observed value! So no error probabilistic assessments are possible. Oh, but there's a prior you say? No error control there either--just what someone believes, and very few scientists want to mix their prior beliefs into the study. The point of the research is to test claims--not beg the question by imputing prior beliefs!

So, yes, once again those villagers out to slay the p-value Monster begat by Dr. Frankenstein turn to the turgid ravings of an ancient Presbyterian minister. Oy vey!!

18 December 2014

I Loves Olive Oyl

The problem with being dependent on data to make decisions: what do you do when there is no data? Well, punt. Let's turn our attention to the oil patch. Crude is quoted at $61/barrel (and change) today, and the blue-eyed Arabs in the Red states are whining poor mouth. Already. Gad.

Here's the dirty secret about oil, or any extractive resource for that matter: marginal cost pricing doesn't work in the short to medium term. Depending on the resource, even long term. The reason is that marginal cost <> variable cost. The latter is what determines whether to power the pumps on existing wells, or not. It is just the cost to run the motors, keep them running, and so forth. Marginal cost is how much to bring *a new* well into production. It's clear that the second number is much higher than the other. And, it explains why the Saudis are willing to keep the pumps running; an existing well is profitable at a very low barrel price. Yes, the petro companies would like to fully amortize all the sunk costs on a well, but they have no control over sunk costs. They're sunk, after all. You're not getting the money back. You kissed it goodbye long ago. So long as you get more for the crude than it cost to get it to the surface, you're ahead. It's just second-grade arithmetic. You could shut the well, hoping that the price will rise soon enough, but so do all the other owners. Who'll blink first? Shut the well, and you lose the moolah, but the other owners don't.
But being this is a .44 Magnum, the most powerful handgun in the world and would blow you head clean off, you've gotta ask yourself one question: "Do I feel lucky?" Well, do ya, punk?

How low Mr. Natural? Hard to say, since nobody seems willing to divulge the number. Easy oil comes from a fresh pipe with sufficient gas pressure to lift the crude to the surface from the deposit. All those gushers from old movies. Variable cost of a barrel from such a well: $0. Nada. Zilch. And so forth.

The Wiki explains the succession of involvement to get crude to the surface. One of the reasons Peak Oil came to be a meme was that USofA production was well (pun intended) into tertiary recovery. That costs rather more to lift. In any case, once the infrastructure to aid lift is in place, the variable cost is the electricity to run the pumps (into and out of the well) and the supply of material to inject. That's mostly water, which is ironic in the case of middle east oil, since there's so little of it nearby.

In sum then, there's money to be made from existing wells even at $50 or $60 a barrel. That's my guess, of course. And, it seems, for the Saudi's too.

17 December 2014

Putin on the Schitz [update 2]

Incentive.
Incentive.
Incentive.

As always, when there's a disruption in the process which created the time series the quant relies on to forecast future values, ignore the time series and look to the changed incentive proposal.

By now all but the most self-absorbed Fox News watcher is aware that something is going on in resource extraction economies, both foreign and domestic. Yes?

The ruble seems to have steadied from its leap off the cliff, but the flight of moolah from Russia appears unabated, and so from Brazil as well.

Why might all this be? Of course, there's the simple finances of it: lower $$$/barrel of petro means lower $$$ for Vlad. Thus, the ruble drops relative to the Buck, and the Money Men decide that Vlad isn't the savior they told him he was. Not that Vlad actually put all that petro and gas in the ground with his own two hands, of course. Lower $$$ for Vlad means he has to call on his police state to keep the lid on. "How much gasoline for that bag of carrots?"
[update]
Here's a snippet from a CBS News report today
With the ruble hitting record lows, many Russians rushed to unload their shrinking bank accounts on high ticket items like refrigerators and dishwashers.
(Remember: trade is always barter, just that "modern" economies use currency as a kind of lube job.)
[end update]
You read similar here not too long ago. "His" interest rate gag won't work: domestic moolah is leaving by the boatload along with foreign. With the ruble now basically a worthless domestic currency, and Russia not nearly a self-sufficient domestic economy, Vlad could well go to war someplace. Stoke, once again, the vision of Greater Russia (USSR) for Real Russians. Stay tuned.

The fundamental problem for all extraction based economies is that, by the nature of the beast, they have to be fascist. And the reason for that is simple: the value lies in the ground, so control of the ground determines control of the resource, which means control of the moolah. That fascism may be direct, as in Russia where Vlad and his buddies "own" the petro, or it may be indirect, as in the USofA where pliant government moats "private" ownership. The USofA, you say? Beacon of democracy? Not so much in the resource states. The oil, coal, and farm states have been very Red since the Founding. The few that stole the land, not always knowing what resources lie within (beyond soil and timber and rocks), from the Natives wanted to keep the value unto themselves. Pliant local and state (and, on occasion, federal) governments saw to it.

While it does cost more to get the stuff out of the ground once the easy X% has been taken, the value of the stuff is determined by the use of the stuff in production. There is no value-add to extraction; I don't care what Vern Smith bloviates. In the case of petro, cracking towers turn raw petro into various different compounds, with attendant different uses. Value-add exists for that, certainly. If folks can't afford to use, or they need bags of carrots to eat, petro price drops.

So, what does this all mean Mr. Natural? It means that interest rates here in the USofA are about to tumble from their already painful (if you're a coupon clipper) lows. How can that be? All that Russian and Brazilian and such moolah is looking for a safe haven. That'd be us. All that USofA moolah that might have gone to resource extraction also needs to find another home. Treasuries are lookin' mighty good. Expect the next auction to dip even further (the 10 Year Note is 13 January; will be interesting here's a concise report). Supply and demand, Econ 101: mo money chasing diminishing number of chairs as the music plays on.
[update 2]
In a stunning analysis this week, Goldman Sachs found almost $1 trillion in investments in future oil projects at risk. They looked at 400 of the world's largest new oil and gas fields -- excluding U.S. shale -- and found projects representing $930 billion of future investment that are no longer profitable with Brent crude at $70. In the U.S., the shale-oil party isn't over yet, but zombies are beginning to crash it.

And, I'll bet most readers laughed out loud when I said that the next 10-year Note auction would be instructive??

15 December 2014

13 December 2014

Crazy Schizo Qaunts

OK, so back in 2012 the Right Wingnuts were blaming Obambi for hiking gasoline prices (and, by necessity, petro price). The lobbyer doesn't have a link to the advert, anymore, so here's the quote of note:
Since Obama became president, gas prices have nearly doubled. Tell Obama we can't afford his failing energy policies.

Today, Mr. Market, led by the same Right Wingnuts is going out of its mind over falling gasoline and petro prices: here (and, of course, nearly every news source).
U.S. benchmark crude scythed below $58 a barrel for the first time since May 2009 for a weekly loss of nearly 12 percent in the midst of a tumble whose severity and magnitude matched what happened during the 2008 financial crisis.

Makes one wonder who the USofA economy is run for? All of us?? Or hedge funds?

11 December 2014

Those Crazy Quants

Regular reader, by now, is aware that I take the view that quantitative analysis is for both fun and profit, but that it should be attempted somewhat gingerly when the venue is human behavior. We get to make the rules up as we go along, unlike the other animals, minerals, and vegetables which live by God's (or Nature's, depending on your -ism) rules. The rules don't change. We ain't Brownian motion, fur shur.

Well, I just found this post on r-bloggers.
The eBook reprints several unpublished articles and reports from the Econophysics Group at ETH Zurich.

"Econophysics"???!!! And all this time, I'd viewed the Europeans as, generally, more astute. Guess not.

10 December 2014

On The Fast Track

Recent musing said that BDUF was the way I understood how real engineers built real projects. Agile type projects didn't exist in the real world. Wrong. Sort of. Real engineers don't always BDUF, although the alternative isn't exactly Agile, either.

Of course, memory failed. Today came a story about Seattle's tunnel troubles, which jogged my memory. Nothing in the story references fast-track construction design and build, but that is the method which emerged from some space deep in the lower brain stem. I don't recall when I first heard of it, but fast-track construction projects have been around since the 1960s, apparently.
"A whole block just went down an inch," said Todd Trepanier, the administrator of the project for the State Department of Transportation, at Monday's City Council hearing. "We don't like an inch."

An inch? Well, yeah.

Anyway, here is piece on fast-track.
Most design professionals believe that only nonspecialized building types with repetitive spaces and standard construction make suitable candidates for fast-track construction. "In cases where you are doing a one-off, customized building, the more you speed up the construction time, the harder it is to get things coordinated, the less iteration in design, the more mistakes, and the longer punch list you will end up with," explains James Timberlake, FAIA, of Kieran Timberlake in Philadelphia...

In other words, since software projects are, kind of by definition, one-off, may be we shouldn't do them 'fast-track'.

Now, wouldn't you love to have this for application development?
Sarah Slaughter, CEO and president of Models of Construction Activities (MOCA) Systems, Inc. (http://www.mocasystems.com), has developed a microsimulation environment that models the entire construction process. It provides comparative information on design and construction alternatives at a high level of detail, usually experienced only during actual construction.

Finally, this paper includes a classic observation:
At one of my presentations, an audience member shared the quip that "If building engineers built buildings with the same care as software engineers build systems, the first woodpecker to come along would be the end of civilization as we know it."