In a paper called "Facts and Fantasies about Commodity Futures" (Yale, 2004), Gorton and Rouwenhorst came to the following conclusion after studying 45 years of data on a wide array of commodities:

- "commodities that have been more backwardated (by the second definition) have not earned larger historical returns"

- "During our sample period, this commodity futures risk premium has been equal in size to the historical risk premium of stocks (the equity premium), and has exceeded the risk premium of bonds."

George Rahal wrote a paper recently that also showed that contango/backwardation did not have any affect on commoditiy returns: http://www.hardassetsinvestor.com/features-and-interviews/1/...

"The other thing is, commodities are an artifact of futures, so they appear to have more volatility in the front month than in the back. Volatility is not the friend of a long-term index-type investor. So an index that avoids the front month is ideal."

There are some commodity ETFs that are not suitable for long term investors though. UNG, which tracks US Natural Gas, generally have bad returns. This is mostly due to the frequent turnover, since it holds the front month futures.

On the contrary, actually. The idea of artistic integrity is a _very_ central point of her preceding novel, The Fountainhead. The book's main protagonist, Howard Roark, is constantly refusing to compromise with his artistic vision.

The increased demand for carbon licenses does not come out of thin air. Someone does pay for it - while reducing other expenses!

In the U.S., we have no shortage of "useful" production, and no shortage of not-very-useful production (see also: Cougartown).

Reducing pollution is useful production. I appreciate the idea that we'll assign a cost to traditional externalities whose cost is usually foisted on society at large, at which point the market will be forced to find new ways to decrease those costs.

The increased demand for carbon licenses does not come out of thin air. Someone does pay for it - while reducing other expenses!

It will also force incumbent, stagnant industries to invest in research and development, and disperse wealth more broadly, both of which pay significant future dividends beyond simply a reduction carbon output.

"force to invest" concedes the argument that these "investments" don't make any economic sense absent artificial costs, aka a govt mandate. As a result, the resources used by these "investments" would have been better used elsewhere.

You're twisting an out of context quote to provide a stupid strawman worthy of attacking with your worldview.

... these "investments" don't make any economic sense absent artificial costs, aka a govt mandate.

There are real costs to pollution (pollution is not 'artificial'), but those costs are levied against communities (and world) without any recourse against those who externalize them.

I quoted your whole paragraph. The only context that I left out was what you were responding to, which people can easily see above. If there's some context "missing" that changes what you wrote into something that withstands scrutiny, that's because you never wrote it.

However, feel free to provide that missing context now.

Or, maybe you can point out how I'm wrong. You know, provide some evidence supporting "stupid". I'll help. If you're "stupid" as "you're mean, I don't like you, and I'm not going to respond to your arguments", I'll agree.

Stupid, as in: In the context of the sentence, the use of "force" was clearly in terms of market forces, and didn't "concede" anything about the rationality or reality of investing in cleaner energy and processes.

It's clear that any discussion with you devolves into responding to ridiculously irrational devices of rhetoric, so I'll stop here.

This market isn't free - the price is forced by govt. You remember govt - they're folks who shoot you if you don't do what they want. (They're not the only folks who will do that, but ....)

Without that threat of force establishing a price, there would be a lot less investment.

You may like the price established, but that doesn't change the fact that the price would be different without the threat of force, and there would be a lot less investment.

> ridiculously irrational devices of rhetoric

Since when does pointing out how govt mandates work qualify?

Ah yes, the proles and their bad taste. They're so dumb that they pay for their stuff and are embarrassed to ask for subsidies.

Everyone knows that the best people rely on thugs to get resources.

Speaking of thugs, where's the omlet?

Um, no. The broken window analogy applies whenever you artifically impose costs. Let's rewrite the above to see why.

Right, well first we have to decide that the products and services created by the increased need for glass cause by the glass-corp smashing windowsare a good use of our country's talent and resources. That's an entirely separate debate, but once we've already decided that then the broken window analogy no longer applies.

Seems like a rehash of the broken window fallacy.

Unlike with the broken window fallacy, you're not just breaking a window and creating jobs to create that same window again. The jobs created are actually going to make an entirely different set of products that the market wasn't creating before due to a flaw in the way the market was designed by the people who set it up.

That's also why assigning value to carbon is different than assigning value to restaurants. Because of the way the market was designed we have the roughly the right number of restaurants, but way too much carbon.

The important thing to realize is that the market didn't just happen, it was designed by people, and it can be designed differently. In the same way that we don't allow people to, say, dumb garbage in a public park just because they may want to under some idealized market fantasy, we shouldn't allow people to dump unlimited carbon in the atmosphere either.

The market is a tool, invented by people, as the most efficient way to distribute resources to those who value them the most. But as a tool, we need to understand how it works, where it breaks down, and how to apply it effectively to create the kind of society we want to live in. We can't just treat it as some kind of religious construct, where it's magically going to write the laws, vaccinate the children, clean up dogshit from the street, etc.

That's why cap-and-trade is so good, because it uses the power of the market to create the kind of society we want to live in. (As opposed to those who argue that we should live in the kind of society the market wants to create, whatever this means, frankly I have no idea and I don't think the people who advocate it have thought it through enough to realize that it literally doesn't make any sense, it's just empty words.)

So your argument (if valid) would seem to support equally well an economic benefit from a broken windows policy.

It's possible that a carbon tax might stave off a future disaster, but that's vastly different from creating "the biggest economic boom in US history". That's nonsense. A carbon tax will harm our economy, though perhaps not as much as the predicted disaster to come.

Similarly, a "no dumping garbage" law would also not create an economic boom, even if it is less harmful than garbage filled parks.

The problem with this reasoning is that Keynes only considers the demand side for capital. What about the supply side? Will lower interest rates encourage savings?

As Eugene Fama points out on his website... http://www.dimensional.com/famafrench/2009/03/qa-confidence-...

"Half of my 1964 Ph.D. thesis is tests of market efficiency, and the other half is a detailed examination of the distribution of stock returns. Mandelbrot is right. The distribution is fat-tailed relative to the normal distribution. In other words, extreme returns occur much more often than would be expected if returns were normal. There was lots of interest in this issue for about ten years. Then academics lost interest. The reason is that most of what we do in terms of portfolio theory and models of risk and expected return works for Mandelbrot's stable distribution class, as well as for the normal distribution (which is in fact a member of the stable class)."

From the article you linked: "None of this implies, however, that the existence of outliers undermines modern portfolio theory or asset pricing theory."

In fact, that's exactly what it does. This is what happens when you build houses on top of sand.

Taleb pushes for a strategy that consists of buying a lot of very safe assets and blending them with bets on "extreme events" (like buying far out-of-the-money put options). Is that a viable long-term strategy? I have my doubts, since there are no evidence suggesting that 'uncertain' strategies have greater returns that more quantified ones.

Part of the reason they underestimated those risks is that they paid attention only to the middle of the distribution, where things are approximately normal. I wouldn't say the explicit Gaussian-ness of the models was the reason for the trouble, but it's hard to imagine a Gaussian model providing any sort of reasonable risk estimate for the type of thing that we saw happen. It was so far outside the "business as usual" range that no risk estimate based on what was happening on most days would have been legitimate.

Taleb pushes for a strategy that consists of buying a lot of very safe assets and blending them with bets on "extreme events" (like buying far out-of-the-money put options). Is that a viable long-term strategy? I have my doubts, since there are no evidence suggesting that 'uncertain' strategies have greater returns that more quantified ones.

I don't know about this; it's all a question of price. If far out of the money puts are really underpriced compared to how often they "hit", then he could be right. My immediate impression is that the crappy prices you tend to get due to low liquidity in the extreme tails might make a profitable strategy tough to come by.

One could certainly look at the historical data over the past several decades and see whether such a strategy might have been profitable (which wouldn't necessarily tell you whether it will be profitable in the future, but might shed at least some light on the matter), but I don't have options data going back very far, so I'm not the man for the job...

He's telling people that "common knowledge" in a particularly despised sector of our economy is not only wrong, but downright idiotic.

And he's presenting it in a way such that Joe the Plumber can feel like he groks it, even if he doesn't stand a snowball's chance in hell of really understanding what's been happening here.

Not that Taleb's altogether wrong - Eugene Fama may be very aware of the limitations and caveats implicit in risk measurements, but it wasn't Fama that got caught pants down screwing around for billions with an asset class that he didn't understand, was it?

What academics understand about the market often has very little to do with what real traders and banks will do in it. Taleb has valid criticisms against the real players, who were freaking idiots in a lot of ways, but he's presenting them as if they're criticisms against the establishment as a whole, which is a bit unfair, but makes for a good publicity play.

Smart move, if you ask me. Nobody would know or care who the hell he is if he hadn't made such a fuss over this stuff.