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Raleigh Durham Open Stocks Futures FX Options Traders Meetup Message Board Trading Discussions › Odds on NEXT FED CHAIR and odds on WHEN WILL THE FED INITIATE TAPERING

Odds on NEXT FED CHAIR and odds on WHEN WILL THE FED INITIATE TAPERING

Dr. Jose' R.
Skeptic
Cary, NC
Post #: 715
You can follow the latest odds on the NEXT US FEDERAL RESERVE CHAIR here:

http://www.paddypower...­

NEXT US FEDERAL RESERVE CHAIR Monday 26th August 2013, 12:00

Today we have Larry Summers way out in front, distantly followed by Janet Yellen:

Larry Summers 1/2
Donald Kohn 18/1
Larry Meyer 33/1
Janet Yellen 2/1
Alan Blinder 18/1
Stanley Fischer 40/1
Roger Ferguson 12/1
Christina Romer 22/1
Jeffrey Sachs 300/1
Timothy Geithner 16/1
Alan Krueger 25/1

and the latest odds on WHEN WILL THE US FEDERAL RESERVE INITIATE TAPERING OF THE QE BOND BUYING PROGRAMME? here:

http://www.paddypower...­

Today we have "2014 or later" as the odds-on favorite, closely followed by Sept 2013 and Oct 2013

August 25/1
September 7/4
October 7/4
November 10/1
December 9/1
2014 or later 6/5


Don B.
DonBrady
Group Organizer
Cary, NC
Post #: 1,104
Very interesting!

Of course, "2014 or later" is a lot broader range than the others, but on the other hand is well past the most favored individual months of Sept or October.......

By the way, re the Fed chair, this chart shows the sudden reversal of the lead earlier this month. It could change again:


Dr. Jose' R.
Skeptic
Cary, NC
Post #: 716
Ha Ha! I see that in the chart you included (from ZeroHedge) it appears that somebody put money behind Nassim Taleb as the next Fed Chair cool. I do not see Nassim Taleb being a real bet in Paddy Power's site, it sounds to me like the Nassim Taleb bet is a joke on the audience by Zero Hedge smile.

By the way,

Probability = (Odds denominator) /(Odds denominator + Odds numerator)

Examples:
Larry Summers Odds 1/2, therefore Probability = 2 / (2 + 1) = 2/3
Janet Yellen: Odds 2/1, therefore Probability = 1 / (1 + 2) = 1/3
Roger Ferguson: Odds 12/1 therefore Probability = 1 / (1 + 12) = 1/13

By the way, the probability figures in the Zero Hedge graph that you show are incorrect, as they are based on the bookmaking odds rather than the actual odds :

Observe that the Irish bookmaker (Paddy Power) is offering odds such that the probability of {Larry Summers or Janet Yellen} is exactly 100% ! and therefore the probabilty of {Summers or Yellen or Ferguson} exceeds 100%. In a fair bookmaking situation, the summation of the probabilities of all the possible chairs should add up to exactly 100%. In this bookmaking offering, just the first three exceed 100% by almost 8%.

The bookmaker, in his wish to avail himself of a profit, reduced the true odds of Summers and Yellen, therefore the calculated probabilities appearing in the Zero Hedge graph are incorrectly high because they are based on the bookmaker odds rather than the actual odds.
The amount by which the actual 'book' exceeds 100% is known as the 'overround': it represents the bookmaker's potential profit to the bookmaker (if he is fortunate enough to accept bets in the exact proportions required). (see http://www.amazon.com...­, and http://en.wikipedia.o...­ )



****************

High probability = low odds as shown by the following intelligent conversation:


Don B.
DonBrady
Group Organizer
Cary, NC
Post #: 1,105
Economists tend to favor Yellen.

http://www.bloomberg....­

I do not like either of the top two candidates much.

Summers sold MBS to clients just prior to the crash and was a big promoter of bank deregulation.

Yellen says she did see the crash coming:

"Ms. Yellen told the Financial Crisis Inquiry Commission in 2010 that she and other San Francisco Fed officials pressed Washington for new guidance, sharing the problems they were seeing. But Ms. Yellen did not raise those concerns publicly, and she said that she had not explored the San Francisco Fed’s ability to act unilaterally, taking the view that it had to do what Washington said.

“For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”

Well, there were indeed lots of warning signs. They may have seemed inconclusive, but she (and Bernanke and Greenspan earlier) should have looked harder at them.
Don B.
DonBrady
Group Organizer
Cary, NC
Post #: 1,106
http://www.cnn.com/20...­ :

According to former colleagues at D.E. Shaw, Summers was directly involved in sales, including sales of what turned out to be highly overvalued mortgage-backed securities to Asian sovereign wealth funds, the kind of securities that were deeply implicated in the financial meltdown. He was also a "prized spokesman" for D.E. Shaw, "routinely made himself available for private consultations" with prospective and existing clients, and met with investors from the U.S. and abroad.
Dr. Jose' R.
Skeptic
Cary, NC
Post #: 718
Don, when reading these criticisms of Summers and Yellen that have appeared in the media, please consider that:

“A man with no enemies is a man with no character.”

“If you have enemies, good, that means you stood up for something.”

Don B.
DonBrady
Group Organizer
Cary, NC
Post #: 1,107
“A man with no enemies is a man with no character.”

“If you have enemies, good, that means you stood up for something.”

True. Also, maybe they have learned from it all.

The confirmation hearings will be very interesting (along with the next debt limit crisis and next sequestration crisis also coming up in the fall). Hmm, short-term interest rates may move around quite a bit this fall!

Dr. Jose' R.
Skeptic
Cary, NC
Post #: 719
Today Janet Yellen has bookmaking odds of 6/4 while Larry Summers remains at 1/2, so the combined probability (based on the bookmaking odds, as ZeroHedge incorrectly computed in the above graph) of {Summers or Yellen} is 106.67%, well in excess of 100% . The (Paddy Power) bookmaker's potential profit today is 30% (since the probability based on the combined (whole book) bookmaking odds today adds up to 130%). The bookmaker's potential profit on the last date shown on the ZeroHedge graph above added to 38% (since the probability based on the combined (whole book) bookmaking odds in the ZeroHedge graph adds up to 138%).

If the bookmaker adjusted down the bookmaking odds of all candidates by the same proportion, this means that the true probability of Larry Summers was 59.2% instead of the 66.7% incorrectly shown in the ZeroHedge graph above. Similarly, Yellen's was 26.6% instead of 33.3% incorrectly shown in the ZeroHedge graph above.


Dr. Jose' R.
Skeptic
Cary, NC
Post #: 723
The lead of Summers over Yellen has increased:

Larry Summers 2/5
Christina Romer 33/1
Alan Blinder 40/1
Janet Yellen 12/5
Roger Ferguson 33/1
Alan Krueger 40/1
Timothy Geithner 16/1
Larry Meyer 40/1
Jeffrey Sachs 300/1
Donald Kohn 20/1
Stanley Fischer 40/1

and The Economist writes "Style more than substance divides the two main candidates to head the Fed...Like Ms Yellen, Mr Summers has spent his life steeped in academic economics. Both his parents were economists, and two uncles, Paul Samuelson and Kenneth Arrow, became Nobel laureates. His early research was prolific, spanning public finance, capital markets, business cycles and labour markets. Some of his biggest contributions overlap with Ms Yellen’s. In a 1991 article he argued that moderate inflation was better than zero because it made negative real interest rates possible and real wage cuts easier. Ms Yellen would make the same argument five years later inside the Fed, and that is why the Fed today targets 2% inflation. Mr Summers also helped demonstrate how macroeconomic policy, by mitigating financial crises and depressions, could permanently raise output. That provides theoretical justification for the Fed’s dual mandate of stable prices and maximum employmen"

http://www.economist....­


Dr. Jose' R.
Skeptic
Cary, NC
Post #: 729
Larry Summers (according to the WSJ http://online.wsj.com...­ ) withdraws from race for next Fed chair:

<<"I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration or, ultimately, the interests of the nation's ongoing economic recovery," Mr. Summers said in a letter to the president that followed the telephone call......In a statement, Mr. Obama said he accepted Mr. Summers's decision...."He was very clearly the president's choice," a former top administration official said. "After all the problems they had with the base, a big confirmation battle looked like a bridge too far...The biggest chunk of the problem was Syria and leaving him out there that long," the former official added. "You just can't do that.">>

while (last night) http://www.paddypower...­ still showed Larry Summers as the overwhelming odds-on favorite, way ahead of Yellen


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