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Floors of logic
Dec. 13th, 2010 05:45 pmAn unusual error of logical thought from the esteemed Mr Peston today at http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/12/why_are_investors_turning_agai.html
The topic of his essay is that in recent days there has been a sharp drop in the price of US bonds -- which means that the interest rate that you get if you buy them goes up (obv. If a bond that pays 3.5% was priced at $100 yesterday and is priced at $95 today, clearly you now get more than 3.5% on your money. This is why you see two interest rates next to various bonds and gilts. One is the actual rate that you get each year, while the second includes the difference between the price you pay and the amount that you get back when the bond matures. But I digress.).
At this point Peston heads off into a weird flaw of logic. He writes:
So where has Peston gone wrong? Well, he is confusing the attitude of investors with the underlying reality. There is in fact no pair of competing explanations. Some investors have sold US bonds because they are bullish about the US economy (and therefore want to put their money into US equities -- this is the old 'standard' trade off between bonds and equities of olden times -- when sovereign debt was still considered a rock-solid investment). Other investors have sold US bonds because they are bearish about the US ability to pay off its sovereign debt and they think that the economy is going to go fall apart any day now. These people are putting their money into gold, or other emerging-market assets.
In other words, the price of bonds has fallen because investors are selling them. No more, no less. The reasons that the investors have for selling bonds are irrelevant, and the fact that they are selling them doesn't make either the bullish or the bearish hypothesis any more likely to be true.
So, Peston's line of thought is "Why are bonds falling in price? Is it because the US economy is getting better or because it is getting worse?" These options, clearly, give mutually exclusive answers.
However, his question should really be: "Why are bonds falling in price? Is it because investors are bullish about the US economy or bearish about the US economy?"
And here the answers are not mutually exclusive, because some sellers might be bullish, while others might be bearish. But both are sellers as a result (which is the unusual situation).
I write about this because it's probably one of the most frequent logical traps that you see the back-section journalists fall into every day. However, this is one of the clearest examples of such a trap (although not the clearest example I have seen of someone falling into it).
++++++++++++++++
In poker news, I am on track for the Supernova with Stars, although it is rather hard work (albeit not as hard as I would have imagined only six months ago). I haven't gone broke. I have tweaked my game in a couple of places (one of the plusses of playing so many hands is that it becomes possible to spot underlying trends that would get lost in the white noise of just a thousand or so hands), and I am learning to stop playing for a while when my old natural leaks (mainly weak-tightness) try to come back in.
If we take this month so far (35,000 hands) as representative of a full year, the news is bad and good. On the bad side, I wouldn't make a living. I'd get about $12k to $13k a year from Stars.
On the good side, that's a darn sight more than I've ever made from Stars in the past, even on a per-100 basis. On the better-good side, I'm confident that if I went BACK to four-tabling, I'd now be a much better player at that game. In other words, if I can break-even when 12-tabling, I'm sure that I can beat 4-tabling for a couple of big blinds more per hundred, and maybe more than that.
So, part of the plan for 2011 is to play 12-plus tables for the first two weeks of the month (which would keep me at Supernova level) and then to play four-to-six tables (tiled) for the second half of the month, which would, I hope, generate on-table winnings rather than rakeback winnings. Net target from Stars, about $15,000.
On Full Tilt I would keep going at the current Gold level per month (about 300 hands a day, or half an hour to 40 minutes). That's generating an EV of $250 to $300 a month, I reckon, to which the year-end bonus of about $600 can be added, plus any other bits and pieces that Full Tilt offers throughout the year. Net EV, about $4,000?
How much time does that leave for Party? Not sure. The above two come to about 90 hours a month, so it all depends on how much time I want to allocate to the game. I'd really like to develop some 6-max skills on Party -- four-tabling at 6-max is just so much more FUN than 12-tabling full ring. One reason, of course, is that I am still learning the game at a much faster pace. The downside to that is that my win rate will be correspondingly less.
So, all in all, I suppose that I could target $25k next year (which is roughly what I targeted for this year, but spectacularly failed to reach).
It's possible that I shouldn't have moved down from $1-$2 as quickly as I did -- but I'm still not built to cope with $3k downswings in a couple of weeks. One plus at the moment is that 12-tabling increases one's standard deviation per hour and makes one significantly more immune to single-hand hits of $100. If I were in search of adrenaline (which, of course, I'm not -- I leave that to the degenerates I play against), I'd be playing $2-$4 now.
________________
The topic of his essay is that in recent days there has been a sharp drop in the price of US bonds -- which means that the interest rate that you get if you buy them goes up (obv. If a bond that pays 3.5% was priced at $100 yesterday and is priced at $95 today, clearly you now get more than 3.5% on your money. This is why you see two interest rates next to various bonds and gilts. One is the actual rate that you get each year, while the second includes the difference between the price you pay and the amount that you get back when the bond matures. But I digress.).
At this point Peston heads off into a weird flaw of logic. He writes:
"Well there is no little debate about what all this means. And what's particularly unhelpful is that the competing explanations are the difference between economic heaven and hell for most of the rest of us.
"The fashionable explanation is that the rise in yields should be seen as good news, because it shows that investors are becoming more confident in the US economic recovery - which is a combination of slightly better data on trade and growth in the US, combined with optimism about the impact of President Obama's decision to extend his predecessor's middle-class tax cut.
...
"The competing explanation may appear to be based on an almost diametrically opposite view of the prospects for the US. It is that the tax cut shows a US administration utterly incapable of getting to grips with public-sector deficit and debt as unsustainably large as anything the fringe of the eurozone can boast - which proves that the quality of US sovereign debt ain't what it was, so you sell."
So where has Peston gone wrong? Well, he is confusing the attitude of investors with the underlying reality. There is in fact no pair of competing explanations. Some investors have sold US bonds because they are bullish about the US economy (and therefore want to put their money into US equities -- this is the old 'standard' trade off between bonds and equities of olden times -- when sovereign debt was still considered a rock-solid investment). Other investors have sold US bonds because they are bearish about the US ability to pay off its sovereign debt and they think that the economy is going to go fall apart any day now. These people are putting their money into gold, or other emerging-market assets.
In other words, the price of bonds has fallen because investors are selling them. No more, no less. The reasons that the investors have for selling bonds are irrelevant, and the fact that they are selling them doesn't make either the bullish or the bearish hypothesis any more likely to be true.
So, Peston's line of thought is "Why are bonds falling in price? Is it because the US economy is getting better or because it is getting worse?" These options, clearly, give mutually exclusive answers.
However, his question should really be: "Why are bonds falling in price? Is it because investors are bullish about the US economy or bearish about the US economy?"
And here the answers are not mutually exclusive, because some sellers might be bullish, while others might be bearish. But both are sellers as a result (which is the unusual situation).
I write about this because it's probably one of the most frequent logical traps that you see the back-section journalists fall into every day. However, this is one of the clearest examples of such a trap (although not the clearest example I have seen of someone falling into it).
++++++++++++++++
In poker news, I am on track for the Supernova with Stars, although it is rather hard work (albeit not as hard as I would have imagined only six months ago). I haven't gone broke. I have tweaked my game in a couple of places (one of the plusses of playing so many hands is that it becomes possible to spot underlying trends that would get lost in the white noise of just a thousand or so hands), and I am learning to stop playing for a while when my old natural leaks (mainly weak-tightness) try to come back in.
If we take this month so far (35,000 hands) as representative of a full year, the news is bad and good. On the bad side, I wouldn't make a living. I'd get about $12k to $13k a year from Stars.
On the good side, that's a darn sight more than I've ever made from Stars in the past, even on a per-100 basis. On the better-good side, I'm confident that if I went BACK to four-tabling, I'd now be a much better player at that game. In other words, if I can break-even when 12-tabling, I'm sure that I can beat 4-tabling for a couple of big blinds more per hundred, and maybe more than that.
So, part of the plan for 2011 is to play 12-plus tables for the first two weeks of the month (which would keep me at Supernova level) and then to play four-to-six tables (tiled) for the second half of the month, which would, I hope, generate on-table winnings rather than rakeback winnings. Net target from Stars, about $15,000.
On Full Tilt I would keep going at the current Gold level per month (about 300 hands a day, or half an hour to 40 minutes). That's generating an EV of $250 to $300 a month, I reckon, to which the year-end bonus of about $600 can be added, plus any other bits and pieces that Full Tilt offers throughout the year. Net EV, about $4,000?
How much time does that leave for Party? Not sure. The above two come to about 90 hours a month, so it all depends on how much time I want to allocate to the game. I'd really like to develop some 6-max skills on Party -- four-tabling at 6-max is just so much more FUN than 12-tabling full ring. One reason, of course, is that I am still learning the game at a much faster pace. The downside to that is that my win rate will be correspondingly less.
So, all in all, I suppose that I could target $25k next year (which is roughly what I targeted for this year, but spectacularly failed to reach).
It's possible that I shouldn't have moved down from $1-$2 as quickly as I did -- but I'm still not built to cope with $3k downswings in a couple of weeks. One plus at the moment is that 12-tabling increases one's standard deviation per hour and makes one significantly more immune to single-hand hits of $100. If I were in search of adrenaline (which, of course, I'm not -- I leave that to the degenerates I play against), I'd be playing $2-$4 now.
________________
