Comments on economics, mystery fiction, drama, and art.

Thursday, October 27, 2005

A Remarkably Close Sweep

The White Sox have swept the Astros and won their first World Series Championship in 88 years. Game 7 was a brilliantly pitched, very well-played game, on both sides. It was a joy to watch.

And--are the Cubs next?

It was a remarkably close sweep. The Sox outscored the Astros by only 6 runs in the four games. And in every game, the Astros had the lead runs on base late in the game, but failed to score.

In Game 1, they had runners on second and third in the 8th. In Game 2, they tied the score (6-6) in the ninth, and had a runner in scoring position. In Game 3, they had the winning run on base, and often in scoring position, in the 9th, 10th, 11th, 12th, and 13th. In the bottom of the 14th, they had the winning run at the plate. In Game 4, they again had the winning run at the plate when the game ended.

Both teams had excellent relief pitching, with the Sox showing up somewhat better. Every game was close throughout, every play mattered. A wonderful series, with a deserving winner.

Monday, October 17, 2005

Hedge Fund Follies

The university from which I graduated has sued its investment advisers for advising it to invest in Bayou Funds, a hedge fund that has collapsed amid the discovery of fraud in the operation of the fund (its principals have pleaded guilty and are headed for jail).

Apparently, university endowmments have been investing in hedge funds more over the past several years, in search of higher returns (according to a story in the Chronicle of Higher Education). It's worth noting that hedge funds provide those higher returns by having their investors take on greater--some times much greater--risks.

But what I found most interesting in the case of my alma mater are the following three facts:

1. The university apparently has 15% of its endowment in hedge funds. That strikes me as amazing, and not too clever.

2. The university reports a return on its hedge fund investments of 8.6% for the year ended July 31, 2005, which is apparently better than the average hedge fund return of 7.4%. However, that 8.6% return includes what apear to be illusory returns on Bayou.

3. The total return on the university's endowment was 15%.

So you take a much higher risk, and earn half of your overa1l returns. Let's do the math. If you actually earned 8.6% on 15% of your portfolio and 15% on the total portfolio, then your returns on the other 85% must have been more than 16.1%.

How does this make using hedge funds a good idea?

Tuesday, October 11, 2005

Good News on the SUV Front

James Hammilton at Econobrowser has data on SUV sales in September 2005, compared with September 2004, model by model. The totals: SUV sales in September 2004 were about 191,000--and in September 2005, about 108,000--a 43% decline, year-to-year.

Maybe market incentives--higher gasoline prices--do work.