Steven Engelhardt

In the course of preparing for Level 1 of the CFA Exam, I learned a few interesting things about the Fed I did not previously know:

• The Fed does not directly control the Federal funds rate. Instead, the Fed publishes a target for the Federal funds rate and attempts to hit it by using open market operations.
• It is a relatively recent development for the Fed to target the Federal funds rate. Before this, the Fed would often target the money supply.
• The Federal Reserve Bank of New York has a special place above all other regional Federal Reserve Banks. The representative from the New York Fed is a permanent member of the Federal Open Market Committee (FOMC), and all open market operations are conducted by the New York Fed under direction from the FOMC.

While reading the Wall Street Journal this morning, I thought I caught them in a (relatively rare) factual error:

[Barack Obama's] subsequent [2004 U.S. Senate] victory was helped along by newspaper disclosures of embarrassing material from the divorce papers of a Democratic opponent.

Kaufman, Jonathan. “For Obama, Chicago Days Honed Tactics“. The Wall Street Journal 21 April 2008: A1.

I thought this passage referred to Jack Ryan, the at-the-time inevitable Republican nominee. Ryan’s candidacy was destroyed as his divorce papers revealed that his ex-wife alleged he forced her to go to sex clubs. However, the article later indicated that this passage referred to Blair Hull, a Democratic primary candidate whose divorce papers revealed he allegedly beat his ex-wife.

The Wall Street Journal did not escape completely unscathed, however, as I spotted this passage from the same article:

[In 2005, Obama] and his wife bought a mansion in Hyde Park for $1.65 million, $300,000 below the asking price.

Kaufman, Jonathan. “For Obama, Chicago Days Honed Tactics“. The Wall Street Journal 21 April 2008: A11.

Obama’s house is in Kenwood, not Hyde Park.

Changes in relative prices lead consumers to change the items they buy. For example, if the price of beef rises and the price of chicken remains unchanged, people buy more chicken and less beef. Suppose they switch from beef to chicken on a scale that provides the same amount of protein and the same enjoyment as before and their expenditure is the same as before. The price of protein has not changed. But because it ignores the substitution of chicken for beef, the CPI says the price of protein has increased.

CFA Institute, comp. Economics: CFA Program Curriculum, Volume 2. Boston: Pearson Custom Publishing, 2008.

I hate this argument. It’s no different from saying:

Because the price of beef went up, I bought less beef, so the price of beef didn’t go up.

Furthermore, “provides … the same enjoyment as before” is impossible to measure and unlikely to ever be achieved. I like beef more than chicken; no amount of chicken will ever provide me the same enjoyment as a good ribeye.

An article was brought to my attention today that indicated that spot and futures prices are failing to converge in certain futures markets. Below is an excerpt:

A futures contract is an agreement to deliver a specific amount of a commodity — 5,000 bushels of wheat, say — on a certain date in the future. Such contracts are important hedging tools for farmers, grain elevators, commodity processors and anyone with a stake in future grain prices. A futures contract that calls for delivery of wheat in July may trade for more or less for each bushel than today’s cash market price. But as each day goes by, its price should move a bit closer to that day’s cash price. And on expiration day, when the bushels of wheat covered by that futures contract are due for delivery, their price should very nearly match the price in the cash market, allowing for a little market friction or major delivery disruptions like Hurricane Katrina.

But on dozens of occasions since early 2006, the futures contracts for corn, wheat and soybeans have expired at a price that was much higher than that day’s cash price for those grains.

For example, soybean futures contracts expired in July at a price of $9.13 a bushel, which was 80 cents higher than the cash price that day, Professor Irwin said. In August, the futures expired at $8.62, or 68 cents above the cash price, and in September, the expiration price was $9.43, or 78 cents above the cash price.

Corn has been similarly eccentric. A corn futures contract expired last September at $3.36, which was a remarkable 55 cents above the cash price, but the contract that expired in March 2007 was roughly even with the cash price.

Henriques, Diana B. “Odd Crop Prices Defy Economics“. The New York Times: 28 March 2008.

Why aren’t arbitrageurs buying grain on the spot market, selling futures, and making delivery?

I may be going out on a limb here so early in the season, but I just ran the Cubs’ current team OBP of 0.339 and ERA of 4.03 through the regression to come up with my prediction for this year’s win-loss record: 90-72.

Update 2008-04-08 11:13AM: Looks like I’m in good company. Baseball Prospectus is predicting 91-71.

1. Diagnosing IIS NTLM authentication failures is a real pain, until…
2. You use Microsoft’s Authentication and Access Control Diagnostics package, which can tell you…
3. You need to enable HTTP Keep-Alives for NTLM to work.

I see both Rudy and Theo Huxtable have appeared in pro-Obama videos. One important question remains: Who are Sondra, Denise, and Vanessa endorsing?

Financial theory asserts that nominal interest rates can never go below zero¹; investors would rather hold on to currency than invest it at a loss. The real world disagrees.

If you ever have the need to represent a date/time (or part of a date/time) as a string for programmatic rather than human consumption (e.g. you are defining a save file format or a network protocol), please use ISO 8601 unless you have a very strong reason not to.

For more information, please read what the W3C has to say about ISO 8601 style date and time formats.

I recently received a bug report for my quick-and-dirty TCP debugging tool tcpconndbg where it was creating a large number of zombie processes. The person who filed the bug, Peter Viskup, was even kind enough to send a patch. While this is old news to anyone with extensive Unix programming experience, always remember the following:

If you create a child process using fork(), you must either:

1. Explicitly retrieve the child process’s exit code using one of the wait() functions (e.g. waitpid())
2. Tell the system that you aren’t interested in the child process’s exit code by using either:
   1. sigaction() with the SA_NOCLDWAIT parameter (preferred)
   2. signal(SIGCHILD, SIG_IGN); (for systems which do not support sigaction())

As I fixed this bug, I realized I hadn’t looked at tcpconndbg in 5 years. My how programming style changes…