Wednesday, December 18, 2013

Things to expect from the FOMC meeting: Why it (should) be time to taper

Breaking the pattern from my usual soccer posts, I decided to put out a couple of interesting thoughts on the Fed's year-end meeting.

There has been a lot of buzz in the market about the Fed's policy to eventually taper its asset purchasing programs (quantitative easing/QE) and unlike what happened in May at the first suggestion of tapering, the Fed is widely expected to outline exactly how it will reduce its purchases so as not to create a severe market panic using forward guidance as a tool.  Janet Yellen, the new Fed chairperson, is widely regarded as an effective communicator, in addition to her longstanding support for tapering.

The last time the Fed had a meeting was in October in the midst of the fiscal cliff debates, so naturally with a downturn in optimism across the nation and uncertainty about the state of the government's finances, the Fed decided to delay its decision to taper; however, with the economy on a stronger upturn than normal (not just fueled by the increase in seasonal unemployment), the Fed could accelerate the process a bit. Here's what we can reasonably expect at this meeting.

  • The Fed will likely not announce that tapering is to start by the end of December or even January. Given the looming sequester cuts in Congress and the uncertainty that it will cause, the Fed would not want to do anything to exacerbate the resulting situation.  
  • Fed officials will outline the specifics of their tapering program. Specifically, they will likely emphasize the reduction in treasury purchases given the inflated state of the bond market.  This will lower demand in the bond-market and raise treasury yields.  They will also stress that they are not immediately cutting out treasury purchases entirely so as to alleviate market uncertainty
  • The Fed will cite that their purchasing strategy will not increase the risk of the balance sheet as purchases of treasuries will be positive along with a continued sustained mortgage backed securities purchase
  • Tapering may be somewhat uneven given the seasonal fluctuations of economic growth in the United States (The past four summers have been characterized by slower growth), but it will definitely be methodical.  
  • The Fed may also address trepidation about the rapid growth in the stock market, given that they have absorbed a lot of risk themselves by adding MBS to their portfolios and that borrowing is still not reaching very rapid levels.  
  • Interest rates will not be altered until the economy shows a sustained recovery with tapering.   
A lot of credit has to go to Ben Bernanke, for his work throughout the crisis.  This was a rather unprecedented situation and many investors and market analysts were critical of the Fed's involvement in the financial market.  But given how interconnected financial markets are with federal assets nowadays, it was necessary for the Fed to use its position as a risk-free lender to balance out an incredibly risky market in the wake of the crisis and stimulate investment and expenditure. I would argue the Fed has had a greater impact throughout the crisis than the government.  The Rescue and Recovery Act stopped the bleeding, but the Fed's policies since 2010-11 have been gradually raising inflation to pre-recession levels and they have reacted quickly to fluctuations in the job market.  

Friday, December 6, 2013

World Cup Group Stage Predictions 1

Early to be doing this? Nah, this is my Christmas and I only get this once every four years.

The criteria I'm using for who can qualify is how good the teams are on paper, where they're playing, (since Brazil has several different climates), and recent form for individual players.

Group A
Brazil - 9 points
Croatia -4 points
Mexico -2 points
Cameroon-1 point

Brazil is by far the best team in this group and they haven't lost a competitive match at home since 1975.  I wouldn't expect anything different especially because Scolari (Brazil's coach, and he won the WC in 2002) knows his best group of players and has a variety of options on the bench, much like Spain.  They have physicality in central midfield with Paulinho and Gustavo to go along with Neymar's and Oscar's creative brilliance.   The reason I dropped Mexico is not for a lack of fitness or climate issues but the main reason is that none of their best players in European leagues are getting games.  On one extreme it's bad if certain players are playing too much (like what typically happens to England) but on the other if they're putting their eggs into the Gio dos Santos/ Javier Hernandez basket, they'll be disappointed.  If they don't use their European players though they lose a bit of quality.  Overall a very bad tradeoff to face.

I'd pick Croatia since they have a solid defense, a very much in-form Mario Mandzukic and Luka Modric to choose from.  Climate issues could be a problem for them.  Cameroon's best players are all over 30 and in this group they will struggle to get points.
Group B (Group of Death 1)
Spain - 9 points
Netherlands-4 points (goal difference)
Chile- 4 points
Australia- 0 points

This was a nightmare scenario for Chile. I said I expected them to qualify in most scenarios but in this group it doesn't seem very likely. Chile can dominate matches and the climate will favor them but it may come down to how many goals they score against Australia who are unfortunately the whipping boys. They are a bit questionable defensively too. They will face the Netherlands on the final day which will likely be a do-or-die for both teams.  The Netherlands forwards just about edge them there but I could end up changing this one based on injuries or interesting developments  If van Persie or Robben gets hurt or loses form for the Netherlands, I'd give Chile the edge.

Spain is being written off a bit due to the thrashing Brazil gave them in the Confederations Cup Final, but let's not forget they probably have the deepest attacking midfield set in terms of quality. Juan Mata, David Silva, Cesc Fabregas, Andres Iniesta, Pedro, Isco, and Jesus Navas to name a few.  Javi Martinez is also one of the best all-round midfielders in the world, and can offer a degree of physicality that has been lacking in this side.

Group C
Colombia -7 points
Cote d'Ivoire -5 points
Japan -2 points
Greece- 1 point

Colombia is the best-equipped team to win the group.  Falcao, Juan Quintero and James Rodriguez form a solid attacking trio, but they have some questions at CB which will only pose a problem in the knockout stages perhaps.  Cote d'Ivoire has an aging defense but it's not as much of a weak point as it is for Japan whose CBs could really struggle against intelligent and powerful forwards like Falcao and Drogba. Greece is fairly predictable in their play and are too reliant on Samaras and Mitroglou for creativity.

Group D (Group of Death 2)
Italy- 5 points (GD)
Uruguay - 5 points(GD)
England -5 points
Costa Rica- 0 points

When looking at it England and Uruguay are actually very similar sides.  Roy Hodgson has tried a variety of different personnel and systems to combat bigger teams much like Oscar Tabarez has done with Uruguay the past 4-5 years. Finely balanced group overall, and I could see all 3 teams playing for draws against each other and really going for it against Costa Rica. England does play Costa Rica last, so in theory they could have an advantage if they can get decent results against Uruguay and Italy. Uruguay does have a climate advantage although playing in the Amazon will be tough for everyone. Their performance will depend on how Suarez and Cavani keep going and whether they can play together. Italy's got the most technical quality out of the group and Cesare Prandelli is quick to adjust his tactics.  I wouldn't expect a lot of goals from this group though.

Group E (Group of Life)
France- 5 points (GD)
Switzerland-5 points
Ecuador - 3 points
Honduras- 1 point

This group starkly contrasts the other groups and France and Switzerland should fancy their chances. France typically starts slow in the Group Stages and tries to become dangerous later on. Karim Benzema's international form leaves questions about who can come up with goals, and they've experimented with their CB pairing a lot; however they're still good enough to qualify if not win their group.  Ecuador was formidable in qualifying but lack creativity through the center.  Antonio Valencia's their best player but as a winger, he can be marked out of a game. Switzerland has a talented defense and have gotten impressive results against big teams in the group stage before. The road will likely end in the round of 16 because they are most likely to face Argentina.
Group F
Argentina-9 points
Bosnia-Herzegovina-6 points
Nigeria-3 points
Iran-0 points

Argentina started out as one of the tournament favorites already but they got a really good group and a favorable match in the round of 16. Lionel Messi will run the show, but more importantly Sergio Aguero and Gonzalo Higuain have been in excellent form for their respective clubs too. Alejandro Sabella's tactical flexibility and a hard-working midfield trio in di Maria, Mascherano, and Banega will definitely help them win the group.  Bosnia has some very talented creative players and Edin Dzeko, but they don't have a solid defense so they may have a very open game with Argentina.  I previously pointed to Nigeria's lack of cohesion even though they have several talented individuals.  In a group like this, a side that stays even somewhat organized will earn points.  Iran is unfortunately is out of their depth.
Group G (Group of Death 3)
Germany-9 points
Portugal-4 points
USA-2 points
Ghana-1 point

This was a nightmare draw for the US; however, they do have a chance at qualifying. Ghana has somewhat regressed the past 4 years so if they can get a big win against them, and a draw against either Portugal or Germany, they can make it to the next round. At central midfield, Michael Bradley and Jermain Jones have improved greatly and overall the US looks more comfortable.  They have evolved from a purely counterattacking side into one that can break teams down and play intricate one-twos around the box. I'll go into more detail about how they can qualify some other time.  They do also play Germany on the final day so they will need everything to go right in the first two games.

Germany has an enviable depth of midfielders. Mesut Ozil, Mario Gotze, Toni Kroos, Marco Reus, Thomas Muller, (I could really just keep going here), so they will be able to impose themselves on almost any side on the world. Mats Hummels and Philip Lahm are top defenders and Bastian Schweinsteiger brings a lot of experience. At striker they risk leaving themselves a bit short, but their midfielders will score goals.  I think Portugal can hold them to a draw.

The reason I think Portugal goes through over the US is that, contrary to popular belief, they have a very solid team including a formidable back 4 with Pepe, Coentrao, Bruno Alves, and Joao Pereira; a good defender-runner-passer model in midfield with Veloso, Moutinho, Ruben Micael; and of course Cristiano Ronaldo.  They lack a clinical striker but when you have Ronaldo, who needs one?

Group H
Belgium-7 points
Russia-5 points
South Korea-2 points
Algeria-1 point

Belgium at the moment is a team of individuals They don't have great chemistry yet, and are susceptible at fullback since they're using a back 4 of centerbacks. That being said, the potential is there and on talent alone they will likely win this group.  Eden Hazard, Dries Mertens, and Moussa Dembele all offer different points of attack for Belgium.

Russia got a favorable group that could pan out for them.  Fabio Capello has a point to prove after leading England through a disappointing World Cup in 2010 and they will fancy themselves over South Korea and Algeria. Can't see them going much farther than the round of 16 considering that they will likely have to face Germany.  

Tuesday, December 3, 2013

World Cup Scenario Draws #1

All 32 teams have qualified, but the groups have not yet been drawn.  I realize what I'm about to do is as useful as pre-Thanksgiving Christmas decorations, but I don't care and I'm making a scenario draw  This is my Christmas, don't ruin it since I only get to celebrate every 4 years. Since there's no fun in just going by the FIFA rankings (in which everyone would just want the lowest ranked teams), I'm going to try something a bit different based on tactics/playing styles, climate adjustment, players available, etc.

Here are the Pots drawn out.

Pot 1: Host + Seeded Teams
Brazil, Argentina, Colombia, Uruguay, Spain, Germany, Belgium, Switzerland
Japan, Iran, Korea Republic, Australia, USA, Mexico, Costa Rica, Honduras
Pot 3: CAF, CONMEBOL + France
Chile, Ecuador, Cote d'Ivoire, Ghana, Algeria, Nigeria, Cameroon, France
Pot 4: UEFA
Netherlands, Italy, England, Portugal, Greece, Bosnia-Herzegovina, Croatia, Russia

Pot 1: Best and Worst Case scenarios

For Brazil, Spain, Germany, and Argentina, they should all feel pretty comfortable playing anyone in Pots 2 and 3 and most of Pot 4.  Needless to say the two teams they most want to avoid are the Netherlands and Italy.  Italy has the tactical tools needed to combat Spain and has a very impressive record against Germany. The Netherlands is starting to integrate some of their younger, more talented players such as Kevin Strootman, and Erik Pieters, along with Robin van Persie and Arjen Robben as experienced players who are in-form.  Qualification Chances: >97%

For Uruguay they have a couple of teams to worry about in addition to the Netherlands and Italy. While they have a talented striking partnership in Cavani and Suarez as well as a resilient defense, they can get overrun by teams with good central midfield duos.  USA, France, Chile, and Portugal fall into this category.  They struggled pretty heavily in South American qualifiers until the past couple of months and are only seeded due to a semi-final run at the Confederations Cup along with winning the Copa America recently.  Qualification Chances: 75%

Colombia and Belgium are roughly on the same boat.  Both teams are appearing at the World Cup for the first time after a long layoff and are brimming with attacking talent. However neither team is particularly strong at fullback. Belgium frequently uses CBs in those positions and it doesn't come as naturally. They could struggle against teams who have very good wingers. Portugal, Cote d'Ivoire, and Ecuador are teams they probably want to avoid.  Qualification Chances: 85%

How Switzerland got in Pot 1 is somewhat of a travesty given that the Netherlands and Italy are better teams by far, but they aren't a bad team and have a quality defense. Stephan Lichtsteiner is very good at getting forward from his RWB/RB position, but if he's forced to play a more defensive role against advanced wingers, the team could struggle to get forward. In addition to the teams above, they would probably not want to face England, Ghana, or France. Qualification Chances: 50/50

Pot 2
This isn't a very strong pot when looking at it.

Asian teams: Japan was the first team to qualify for the World Cup (not counting Brazil who automatically qualify as hosts), but since then they haven't had a great run of games, including a disappointing Confederations Cup. Their CB pairing is still a bit shaky, but they have an impressive attacking trio with Keisuke Honda, Shinji Kagawa, and Shinji Okazaki and are relatively comfortable with the ball.  They are organized enough to do well against many teams in Pot 3 but need a favorable matchup with a team from Pot 4 to progress. . South Korea is in Japan's boat but doesn't quite have the same attacking power.  Their back 4 plays in the Korean league which could be a cause for concern. They are a side that presses energetically. Qualification Chances: ~40%

USA has been in very good form throughout qualifiers but could face a tough group.  They have the physicality to keep up with many teams, they're looking more comfortable playing with the ball, and they'd probably fancy themselves against anyone in Pot 3 when in form. That being said, beating teams in CONCACAF while playing well is a totally different thing than taking on some of the best from Europe and South America. One concern is Jozy Altidore isn't playing very well for struggling Sunderland in the Premier League. While there are very few outcomes in which they can win a group, finishing second might not be too far-fetched. Qualification Chances: 50%

As for the other teams, Mexico just about squeaked into the World Cup and several of their starters, including Chicharito, Andres Guardado, and dos Santos have been unable to get games in Europe's top leagues at the moment.  Starting players from the Mexican league are more likely to be in form, but their talent level will likely be insufficient considering how many teams are.  Iran, Australia, Honduras, and Costa Rica are sides built primarily around one player and that doesn't bode well since they are easy to mark. I can't really see a scenario in which any of these teams would qualify.  Mexico might be able to if their players in Europe start playing more games. Mexico's chances: ~30%.  Australia 10%, The Rest <3 b="">

Pot 3:
The theme for this group can be summed up as strong attacking play but questionable defending.  France was in a group with Spain in UEFA qualifiers and that's the only reason why they had to enter a playoff against Ukraine. While Franck Ribery is the standout player for Les Blues, there are plenty of talented attacking and defensive midfielders to choose from; however, there are some issues that can surface.  Many French players play for English clubs and that could potentially lead to burnout.  Plus Didier Deschamps still hasn't figured out what his best CB pairing is and that nearly cost them a spot at the WC against Ukraine.  Karim Benzema's lack of form for the national team is slightly worrying but if Olivier Giroud keeps playing at a high level, like he is for Arsenal, then they might go far. 75% chance of qualifying

African teams: Cote d'Ivoire and Nigeria have had awful luck with draws in the past being put in either the Group of Death or the second hardest group.  With the strength of the opposition at the World Cup this year, it looks likely to continue. Nigeria has several energetic young players but are rather erratic going forward and too often resort to individual quality to score as opposed to cohesive team play.  Cote d'Ivoire are nearing the end of a golden generation but still have very talented, powerful attackers like Yaya Toure, Wilfried Bony, Gervinho, Seydou Doumbia, and of course Didier Drogba.  Their first choice defense is aging, but as a team Les Elephants can hold their own against some teams in Pot 4, and would fancy themselves against many teams from Pot 2.  35% chance of qualifying

Cameroon and Algeria are unlikely to qualify due to a lack of depth or inability to hold out teams from other groups. Beyond Samuel Eto'o who's 31 years old, there isn't much going for Cameroon.  Ghana still puts out several young players and with Kevin-Prince Boateng and an organized defensive structure they can play well and limit some of the big teams. However,with the level of attacking talent present at the World Cup, it may not be so easy for Ghana to qualify. Qualification Chances: Ghana 50/50, Cameroon/Algeria 15%

South American teams: Chile continues to be a high-pressing and ball-retention side, in the same pattern that former coach Marcelo Bielsa established at the 2010 World Cup.  Alexis Sanchez and Arturo Vidal are probably the biggest threats. Gary Medel is a tenacious defender and has carried that over to Cardiff.  They ran the show at Wembley in a friendly against England, and recorded as many wins as Argentina and Colombia in qualifying.  They can be exposed on counter attacks though and would be unlikely to impose themselves on a team in Pot 1. I expect them to qualify for the knockout stages in most scenarios.  They can definitely play their game against teams in Pot 4 due to a climate advantage and a cohesive starting XI.  Ecuador's chances are limited due to a lot of their play being concentrated around one or two players.  Antonio Valencia and Felipe Caicedo are their best attacking outlets.  Qualification Chances: Chile 60%, Ecuador 25%

Pot 4:
These are all UEFA teams who won their group/playoff match but weren't seeded.

The Netherlands and Italy are probably the teams best-equipped to qualify for the knockout stages either as group winners or runners up.  Italy did struggle a bit at the Confederations Cup as their players had to cope with the climate and a few injuries but they gave Spain a tremendous game and did fairly well against Brazil despite conceding 4 goals.  The Dutch have been revitalized under Louis van Gaal and have a good mix of youth and experience but there might be one or two defensive issues which could surface.. Italy under Cesare Prandelli are very tactially adaptable and look comfortable with a back 3, a back 5, a midfield diamond, or a straight 4-3-3/4-3-2-1.  They don't often use width in their attacks however. Both their respective problems might only surface in the knockout stages however. Qualification chances: > 95% for both teams

Greece, Russia, and Bosnia-Herzegovina are sides based around one or two good players but not much of a team dynamic.  For Bosnia, Edin Dzeko is the main source of creativity and danger but he isn't getting many games at Manchester City and unless that changes he might struggle and the team will lose its edge.  Greece has Kostas Mitroglou. but again the lack of form of other players means he's an easy target to mark out of games.  Russia's main source of danger is Alan Dzagoev but he is rather streaky and gets frustrated when pitted up against a good defense.  It's hard to see how these teams will qualify as they might struggle even against teams from Pot 2.  20% chance of qualifying

Croatia's form has been indifferent in 2013, similar to Mexico but they did manage to win their qualifier against Iceland.  Luka Modric and Mario Mandzukic are probably the most talented players and Dejan Lovren has been very solid for Southampton at the back so there could be hope for them. They can probably handle most teams from Pot 3 and Pot 2.  Qualification chances are around 50/50. 

And now we come to England and Portugal.  Portugal has pretty much everything except a proper forward to support Cristiano Ronaldo.  A strong midfield, a strong defense, but no one apart from Ronaldo to finish. If they can make it out of the knockout stages then they could be a dangerous proposition for many teams. England took qualifiers fairly seriously and Roy Hodgson has them playing as a unit; however with the increasing strain of English football, a lot will depend on how Wayne Rooney plays.  A lack of dynamism in central midfield could hurt them if they have to face one of the top teams.  In most cases I'd expect Portugal and England to qualify for the knockout stages.  75% chance

Friday, August 9, 2013

Premier League preseason rankings 11-20

Here's the bottom half of the table.

Usually this is much harder to predict, and most likely I'll get this wrong.  But I've made it with the intention of averaging out where they could finish since one or two unpredictable games throws this out of whack.

11. Norwich City 45 points:  Adding Ricky van Wolfswinkel and Gary Hooper gives them more consistent striking options than Grant Holt, who joined Wigan in the Championship.  Their back 4 has some issues, so while you can expect them to attack a bit more, they're still prone to suffering big defeats so they'll probably finish below Fulham on goal difference.
12. West Bromwich Albion 45 points: Romelu Lukaku won't be around this time, so they could suffer a drop-off in goals scored but overall they defend pretty well, and will stay out of the relegation scrap. That being said the last two years they were mathematically assured of survival, they basically coasted to the end of the season.  
13. West Ham 44 points:  Sam Allardyce divides opinion. Some people can't stand his emphasis on long balls and physical play, while others are just happy that it works and keeps them up.  As with a lot of his previous teams he can get a couple decent signings to keep them in the Premier League but the impact wears off.  Signing Andy Carroll suits their style of play.
14. Cardiff City 42 points:  They stormed their way through the Championship, made some okay signings, certainly more than their competitors, and from what I've seen they play decent football. It may take a while to reach the magic 40 point mark, but I think they'll reach it.  Probably the most likely of the newly promoted sides to survive.
15. Aston Villa 41 points: Keeping Christian Benteke was a huge plus for Paul Lambert's young side. Lambert's unafraid to play young players and while they suffered some thrashings midway through the season, they played well towards the end of the season.  They may struggle for a bit, but should secure safety by early April.
16. Sunderland 40 points: While Paulo di Canio gave Sunderland the boost they needed towards the end, he seems most likely to suffer from second-season syndrome, despite the signings he's made.  Sunderland had a pretty poor disciplinary record too, Altidore may have a point to prove as he struggled in England when he played for Hull City, and Giaccherini might impress
17. Newcastle United 38 points: This club is in a huge mess, ranging from issues such as internal power struggles, a sporting director who can't pronounce his own players' names and is so deluded with his own managerial success, Papiss Cisse's refusal to wear the Wonga logo, etc.  They probably won't go down, but it's definitely not a situation you want to be in.
18. Stoke City 34 points (R): Mark Hughes may be a great interviewer considering how many jobs he's left or been sacked from, but the pressure will be on him immediately.
19. Crystal Palace 29 points (R):  Unless they get a couple players back from loan, they probably won't stay up.  Too many Championship players on their belt, not enough players reinvested in.  
20. Hull City 26 points (R): Sorry, Hull City Tigers that is.  Still have a team largely built with championship players, and Steve Bruce has yet to make any improvements.     

Premier League preseason favorites 1-10

2013-14 Premier League projected rankings and points earned.  Based on current squads, subject to change if players come and go.

Expect games between the top 3 to be very cagey, but also very decisive for who wins the title this season.

  1. Chelsea 88 points:  I'm not just saying this because Mourinho's come back, although his previous accomplishments in the Premier League and his more attack-minded players certainly help.  They have continued to stockpile No. 10's and attacking midfielders, and they'll keep Romelu Lukaku who can offer them a more consistent striking option despite his youth.  The Ba/Torres tradeoff (clinical goalscoring vs. fluidity) can be avoided in big games. They have minor weaknesses, such as a lack of a defensive midfielder, but that might hurt them more in the Champions League.    
  2. Manchester City 82 points:  Navas adds attacking width which City sorely lacked last season, and Jovetic + Negredo gives them 4 strong strikers.  While the amount of money they've spent is once again really high, they have done enough to go above United, but Manuel Pellegrini is in his first year with the team and the Premier League for that matter so he may have his own learning curve dealing with consistent compact defending and a lack of pressing.   
  3. Manchester United 78 points:  David Moyes has inherited an already good team, considering how easily they won the title.  The problem though, is that the teams around them have improved more and United have not.  Despite the rumors,I'm pretty sure Wayne Rooney will stay and have a good year as he tends to, during the year before a major international tournament. Squad depth will help them only so much and a difficult start to the season may make it difficult to establish early momentum.
  4. Tottenham 73 points:  They've spent a lot of money this summer in an attempt to keep Bale satisfied and it looks like Champions League or bust.  Luckily for them Arsenal haven't improved enough.  Very good starting XI, but they lack the squad depth to mount a title challenge.  AVB will likely move to his favored 4-3-3 with Paulinho and Dembele providing energetic runs from midfield.    
  5. Arsenal 69 points:  Arsene Wenger usually gets the best out of his squad, but they usually take a while to hit top form.  They recorded just 1 win against teams who finished in the top 5 and that was against Spurs.  This time they may not be so lucky.  Getting a clinical striker could make the difference.
  6. Liverpool  60 points: Brendan Rodgers may have added some more strikers, perhaps as insurance for Suarez, but his tactics are a bit bizarre for what he's trying to accomplish.  He likes passing and playing out of the back, but he doesn't buy mobile defenders, nor does he play a pressing game.  Big reason why they struggled against teams in the top 5, only 1 win out of 10 games. 
  7. Swansea 55 points:  Laudrup found a good balance between ball retention and penetrative passing.  Very impressive finish last season and they've added smartly to the squad.  Europa League games could test squad depth if they qualify.
  8. Everton 52 points: They've also got a new manager in Roberto Martinez, who will favor keeping the ball on the ground.  What may hurt them is the lack of personnel to play Martinez's way.  Still, enough talent to finish comfortably in the middle of the table. 
  9. Southampton 50 points: Mauricio Pochettino is a Bielsa-esque type manager, who will get his team to press energetically and take lots of shots.  They managed to add Victor Wanyama, who was Celtic's standout player in the Champions League.  While it's tempting to say new-manager syndrome will wear off, I think Pochettino will continue to impress.  
  10. Fulham 45 points:  Adding Martin Stekelenburg was a good move.  He's an experienced keeper and a good replacement for the aging Mark Schwarzer.  They tend to stop caring once they hit the 40 point mark.  Not very impressive tactically but enough experienced players to keep them out of relegation scraps.

Sunday, July 14, 2013

Economics and morality of price discrimination in college tuition Part 2

...Continued from the first post
Survive or die.  Capitalism wins the day
Seems harsh, but this happens in all markets, and educated labor markets are no different: employers will only look to hire and use however much they need.  Similarly, if products fail to adapt with the times, then they must either adapt or be forgotten.  In this case, a couple of majors may not survive if they continue to be priced the same way as in-demand degrees.  This creates educational arbitrage and universities do not have to take responsibility for it since they are the only institutions that offer creditable degree programs. And thus we have huge market gaps.

One example is fields or majors that are overpopulated with qualified individuals.  If there's a shortage, like there is with programmers and engineers, then wages are going to be attractive and there will be plenty of opportunities available to those who are willing to brave the choppy waters of said fields.  However if there's an overage of qualified people in certain fields, such as in law or psychology, then there will naturally be fewer jobs available for the wages they would want.  Although there would be pressure on employers to drive down wages, they can't because education costs are high enough as is and graduates want to be compensated adequately for the heavy investments they make.

Wait, What if we....
Do away with college altogether?  It's gotta be a scam right?  All joking aside, there should be a more tangible solution.  Markets may dictate availability and wages of jobs given the demand, but universities' collective role in producing the next generation of professionals can and should be altered.  If universities treat all majors the same and charge a flat rate, they aren't maximizing their return on investment for each student in the long run.   Eventually students and future applicants will opt to apply for the more profitable degree programs and when those get overpopulated, they get turned away and take their talents into other fields away from universities.  Instead of settling for underemployment after college, they'll cut out the middle man and maximize their earnings potential without debt even if it is lower than what they hoped for.  It's a dark reality but also a possible one.
Universities argue that they address these disparities via financial aid and wealthy donors;  however, this strategy is inefficient because it depends on factors largely outside of most students' control (parental income, tax returns, government's willingness to fund, private sector's willingness to fund, etc.).  Most of the time, the aid students receive is akin to a loan albeit at a higher interest rate either collecting interest during school or after graduation.  In the long run, universities won't maximize their investments because they will have to do away with some of their art institutes, lose some donor funding, and see a huge flock of people being turned away because there will be too much demand for their top profiting degree programs.

So why not charge different prices for different majors? An art history major will likely not make as much as a programmer anyway, so why are they charged as though they will? This is more in line with rational investment decisions because a person who realizes that his returns on investment are the same percentage no matter what route he chooses, will opt for the one he likes the most as opposed to simply the one that makes more money.

I've mentioned return on investment a lot, but how would a university set up a price discriminating system to eliminate "educational arbitrage" and maximize their future earnings from students.  I'm not sorry about using math.

  • Evaluate the mean annual starting salary for graduates from the university for every major.  I_philosophy = 30,000  I_civ.eng. = 70,000.  Numbers are hypothetical
  • Evaluate the unemployment rate for each major.  Subtract this value from 1 and multiply that number by the mean salary of graduates.  u_phil =.2.  E(I_phil.) = (1-u)*I =24,000.  u_mech.eng. = .05.  E(I_civ.eng) = (1-u)*I_civ.eng = 66500.
  • Multiply this expected value by some coefficient correlated with the relative rankings of the university and a discounted value of future education required.  For instance a philosophy major or a law major needs more school to get a job so the university should factor that in and create a pricing scheme.
This method is far from perfect but merely a sample of how one would go about price discriminated based on earnings potential. There are other factors associated with this which I have probably not thought about or addressed.

But why should we conform to them? We hold all the information.   
There are some ethical questions behind this.  As I pointed out earlier, universities could easily fall behind the 'we're a learning institution, not responsible for the salaries and job prospects of our students' tag. After all universities have their own interests to protect whether it's maintaining buildings, hiring top quality professors, offering tenure, or attracting generations of applicants or future donors, and protecting their prestige.  What goes on in the corporate world shouldn't bother them because they don't offer half of those things. That too, universities would even argue that they are more valuable than corporations because they're the intermediate step between young adulthood and adulthood.

There are several ethical concerns about how much higher education should be determined by what's popular in the private market since often times their interests are at odds with each other. But my argument is that from an economical point of view, universities should offer variable rates on their tuition fees based on earnings potential from the majors students choose.  Not only does this allow students to make a more informed decision on following their passion but it also gives them more liability.  Survive or die isn't going to be thrust open them, but rather presented to them so they can make a rational choice.  

Economics and morality of price discrimination in college tuition

It seems that every other day, we see a story of recent college graduates being overwhelmed by massive student loans and limited job prospects.  As a result we see plenty of critics decrying both the universities and the graduates from them for some of the following reasons. This is not an exhaustive list. 

1.) Education itself hasn't changed, but the price has skyrocketed.  
2.) Students have unrealistic expectations of what  4 year college programs will do for them and don't prepare themselves for the practicalities of the job market. (I was told I would learn to make cookies)
3.) They don't choose practical degrees or there are too many people majoring in one or two fields (Capitalism: survive or die, love it or leave it #'Merica).

But that can't be the full extent of the problem.  Not all job markets are equitable for degrees and not everyone's qualifications guarantee them an equivalent job.  Some degrees require a masters/PhD, MBA, CFA, and others don't need graduate degrees at all.  So we have to find a way to make accurate comparisons between different degrees and find a more market-friendly solution.

It's still the same apples, just twice as expensive.
This begs the question of how is what we're learning today, different from or better than what our parents learned  20-30 years ago?  In some of the more job market friendly degrees such as engineering, computer science, or medicine, we can perhaps understand the economic justification behind higher tuition.  Why?  Because these areas have benefited the most from technological growth between say, 1980-2013.  Capabilities and modernization of tasks in the job market mean roughly equitable increases in salary, without considering inflation.  Naturally a university would think that they would want to see a greater return of investment on educating these future infrastructure developers, doctors, and potential startup creators.  After all, where would these men/women be if it weren't for universities.

The same can't be said for other degrees such as those within humanities.  Despite the intellectual value and critical appreciation one could earn from studying in these fields, often times there isn't a whole lot of tangible growth or difference between what a humanities major learns today as compared to 20-30 years ago.  Because salaries and career opportunities in those fields was high and cost of education was low back then, people saw a satisfyingly high return on investment.  Not as high as some of the more technical majors, but enough to justify their passion in art history.  Now the cost of education has risen, the economy has slumped, people are more tech oriented, and thus opportunities are low.  Same apples from 20 years ago, except they've gone a bit too ripe, and they're twice as expensive

What would you say, you [can] do here?  
There's a memorable scene in Office Space in which an employee struggles to tell the consultants what exactly he does for the company.  Needless to say he gets laid off later on, but sadly this is how a lot of companies see college graduates nowadays:  Smart kids, but not necessarily valuable.

This is a big problem.  Universities have either attempted to absolve themselves of responsibility by hiding behind the tag of 'learning institution' or they have advocated a higher level thinking approach by instituting core requirements.  While students aim to learn there, that's not usually the sole purpose for them to take on $40,000+ in debt.  It's not enough for them to see how the chocolate chip cookie evolved and changed over time, they want to learn how to make it.  Should it be a university's obligation to incorporate practical elements such as how to use Excel, Salesforce, PhotoShop, Java, Python, etc or how to get the most out of that cool internship? Or is that entirely the responsibility of the students to make themselves valuable assets?  The truth, as with a lot of things, lies somewhere in between.  It's hard to gauge what students would need since universities can scarcely predict what a student wants, but it will eventually hurt those universities' future returns on investment if students recognize that these 4 year programs don't meet employer expectations anymore at some basic level.

(Continued, see next post)

Friday, May 24, 2013

Is Borussia Dortmund a 'Moneyball' Success story?

In the past 3 seasons, Borussia Dortmund has won the Bundesliga title twice, and has consistently gotten the better of traditional German and European powerhouse that is Bayern Munich.  So to followers of  the Bundesliga and die Borussen, it may not come as a surprise that they will be playing in the Champions League final. But to the casual football fan, Borussia Dortmund is like a lesser-known family restaurant that  has received rave reviews on Yelp, a marked change from the ultra-posh fusion restaurant that everyone is used to raving about.

What makes Dortmund different is that they are an example of financial recovery and a "model for the future" as many English pundits have now come to accept, when not 3 years ago, they were bashing Arsenal for doing something similar.  They reached the Champions League semifinals with a starting 11 that cost £29 million to assemble.  The team they beat, Real Madrid, spent close to £400 million on their team.  And let me be the first to tell you that Real Madrid is no slouch when it comes to European play.  Bayern Munich, Borussia's main title rivals, spent massive sums over the past few years to close the gap on Dortmund, and while it has resulted in an emphatic league title, they have only beaten this Dortmund team once.

So can we say Dortmund is the first successful 'Moneyball' story in European football?  In an era where filthy rich owners can sign anyone at will, exploiting indebted clubs during the process, our inclination is to hail Borussia Dortmund as the financially sound team who has found a way to outfox the "big money" clubs.

On one hand, I think it is incredible that within 8 years, Borussia Dortmund went from near bankruptcy to creating one of the best teams in Europe on a budget like the figures above state.  But on the other hand, they weren't so drastically removed from success because of bankruptcy. They never dropped out of the top flight, meaning they had a roughly constant revenue stream, they just had to settle their debts via loans and restructuring.  When they fell into debt, the club's supporters stepped in and bought shares of the club, paving the way for a new model of club ownership and sustainability.  While this left Borussia Dortmund with less money to spend, they were able to assemble a team through the unique scouting networks the Bundesliga has often had.  According to prominent football finance blogger Swiss Ramble, Borussia Dortmund didn't impact their cash flow significantly by the transfer market .  He also points out that Borussia Dortmund had a higher percentage of commercial revenue, meaning that they still had a lot of marketability and popularity, despite their lowly financial status at the time.

Compare that to the original "Moneyball" situation at the Oakland A's. Granted it's a different sport, but the original idea meant that the A's formed a team by using lesser known but much more valuable metrics such as on-base percentage, number of walks earned, etc.  Borussia Dortmund has done what a lot of German clubs do when it comes to assembling a team:  They had a good group of young academy players, found some players for very reasonable prices, and formed a team greater than the sum of its parts.

These concepts seem very foreign to the Premier League, and many Bundesliga clubs have taken pride in their lower ticket prices, fan-ownership, and exciting football.  But I still wouldn't deem Borussia Dortmund's success as Moneyball.  Is it a very smart and well-managed financial turn-around from a failed IPO?  Absolutely, but when it comes to team building, they weren't coerced into forming a team based around statistics and specialized play.  

Sunday, May 5, 2013

What the new Premier League TV deal means for EPL's future

The English Premier League signed a new deal with Sky Sports which will take into effect for the 2013-14 campaign.  The new deal will be worth approximately £3 billion  ($4.8 billion), which more than doubles the current deal.  There are other elements as to who has broadcasting rights in the United Kingdom (BT can broadcast 38 games, essentially breaking the BSkyB monopoly) but what's also included is that NBC will now become the primary broadcaster of Premier League games in the United States, rather than ESPN.

So what does this all mean for the Premier League's future?

Well that ultimately depends on what we're talking about. From a global viewership standpoint, we can't expect much to change in terms of accessibility, in fact it will probably improve.  The Premier League is the most watched football league in the world and consistently makes the most money by attracting viewers everywhere.  For the UK, they get more channels to watch their favorite teams, more live games, etc and I would imagine a similar effect for other countries who already have steady EPL viewership going.

What it means for United States viewers though is something different and has to be put into context.  ESPN typically gets the rights to only one game per week, and then a midweek game around once a month.  So that amounts to roughly 45 or 46 games per season.  ESPN got a lot better about distributing their viewership for all teams starting from the 2010-11 season so it wasn't all Manchester United, Arsenal, or Chelsea games being  aired; however, that's a very small sample of the 380 games per year even if we get a roughly even distribution of seeing all 20 teams play.  Fox Soccer, as a dedicated channel, offered a lot more games but there aren't that many viewers who subscribe to Fox Soccer since the game hasn't reached the point where people are willing to pay for sports packages exclusively to watch soccer.  The bundles and sports packages aren't optimal either so the Premier League hasn't fully tapped into the US market.  So the ability for NBC to get these games means more access for everybody since the network isn't under as much pressure to air other sporting events on Saturday(ESPN typically has to juggle college sports with the EPL, and occasionally Nascar)  And it lowers the need for online streaming.  NBC has promised to air more games than ever before on NBC, NBCSports, and  Accessibility won't be a problem

What will be a problem for us though is that NBC has a bit of pressure on them to maintain the quality of analysis. For established sports, like football, basketball, and baseball, we really don't care about what the commentators have to say all the time since we already have a solid understanding of what's going on in the game.  But soccer is very subjective and the sport hasn't yet reached the same level of popularity or understanding. (importance of possession, pressing, offside rules,etc.)  ESPN made a smart move in getting Ian Darke and Steve McManaman to cover their games.  Ian Darke was already popular with US viewers after covering the national team at the 2010 World Cup, and McManaman was a former elite player in England and Spain who knew enough about the game to reasonably satisfy knowledgeable soccer fans. Essentially, NBC has to find good commentators who can present the game well, otherwise people could lose interest and the overall growth of the sport could diminish.

Monday, March 11, 2013

Champions League Predictions and Power Rankings

The Champions League Round of 16 is 3/4 of the way through but there are still some important games to be decided.

Borussia Dortmund impressed me the most with their turnaround against Shakhtar Donetsk.  Shakhtar looked a bit sluggish and perhaps since it is the Ukrainian league's off-season, they weren't perhaps ready to play one of Europe's most in-form teams.  A victory was expected but Dortmund dominated the game 3-0, barely allowing Shakhtar a sight of goal

The Manchester United and Real Madrid tie was on a knife's edge, but Real Madrid did what was expected of them when United went down to 10 men.  United put in an admirable display and will feel rightfully aggrieved with the red card, but those have been given before. Real weren't convincing but  The form they've been on recently in all competitions including the consecutive wins over Barcelona makes me think that they're finally hitting the heights of last season and that could put them back among the strong favorites to win  La Decima.  Cristiano Ronaldo has scored 9 goals in the competition and leads everyone.

The other ties went roughly according to plan.  Valencia gave PSG a scare and were the better team for most parts of the game but couldn't get the crucial second goal.  Juventus cruised against Celtic and are quietly establishing themselves as a threatening team in Europe again.

On to this week

Barcelona vs. Milan.  Milan shocked everyone with not only a win but a dominant defensive display as they restricted the space for Barca's midfielders to disrupt their passing rhythm.  As a result Barca ended up passing horizontally with little penetration which is very unlike them.  Barca's form has recently dipped but Milan managed to restrict Barca as a whole team to 1 shot on target.  Messi didn't even have an attempt.  A 2-0 win makes the job much more difficult for Barca who require a 3 goal win to go through and that's no guarantee even in front of a hostile Camp Nou.  I think Milan will get the job done but will lose in the process.  A 2-1 Barca win but Milan go through 3-2 on aggregate.

Bayern Munich vs. Arsenal:  Bayern were the much better team against Arsenal and showed how many ways they can hurt you.  They played mainly on the counter attack against Arsenal but scored 3 away goals at the Emirates. Arsenal have an impossible task on their hands and have to go all out to go for a 3 goal win in Munich (next to impossible given Bayern's defensive record this year).  I think Bayern will get a 2-1 win and advance 5-2 on aggregate.

Schalke vs. Galatasaray: The 1-1 draw in Turkey was a very open game for a first leg but Schalke wasted several opportunities to get the second.  Schalke are primarily a counter-attacking side but I expect them to advance and create more chances at home because Galatasaray have to chase the game.  A 2-0 win on the night.  

Malaga vs. Porto: Malaga were very poor in the first leg in Portugal and Porto deserved to score more; however, Porto only managed 1 goal and the tie is fairly open.  Malaga will need to put Porto's midfielders under pressure as they chase for a goal.  However, this Porto side has a little too much quality for Malaga and I think they'll go through 2-1 on aggregate.

Friday, January 25, 2013

Arsenal FC, Financial Restrictions: Is FFP going to validate their long run strategy?

Arsene Wenger has acquired the title Le Prof, for his overall knowledge and understanding of the game of football.  He is also one of the few football managers who has an economics degree.

Arsenal's early successes (1996-2004) under Wenger largely came due to the fact he was a master at finding arbitrage opportunities.  In addition to preparing tactically for matches, Wenger keyed in on a lot of other smaller metrics like player stamina, sprinting speed, scouting networks, player diets.  With these arbitrage opportunities Wenger was able to make huge profits in the transfer market when his players wanted to leave, and when they stayed, they were a force to be reckoned with. 

However, recent years have seen other teams catch up to Arsenal and overtake them without much resistance.  The big examples are Chelsea and Manchester City, who managed to attract wealthy investors who paid off the clubs debts and thrust them into the highest echelons of English football along with established clubs such as Arsenal and Manchester United.  It was a combination of this, as well as updated expectations by competitors who started implementing similar practices.  More competitive training sessions, more foreign players, a greater use of statistical analysis, etc.

Planning for the Future
Arsenal's board, and particularly Arsene Wenger have come under a lot of fire for their unwillingness to spend.  Whether they have the money to spend on top players and keep up with the Manchester clubs and Chelsea is another issue, and there are literally thousands of articles on the subject.

What I want to talk about is whether Arsenal's financial policy of spend what you earn is sound.  Why wouldn't it be?  Spend what you earn?  You don't need to be a football manager or an economist to know that. 

It looks like Arsenal is treating this as a two-period economic game.  In a nutshell, Arsenal's dominant strategy in the first period will be to save money.  That means do what it takes to keep the revenue stream consistent.  If players want more than what is affordable, then they should leave.  The hope is that in the second period the teams who got ahead of them by paying inflated wages and transfer fees courtesy of a sugar daddy  would be restricted financially or severely hampered by the reality of their debts similar to Leeds United in 2003-04.  

Arsenal seems pretty confident that clubs like Chelsea and Manchester City would be reigned in soon because UEFA's Financial Fair Play rules are set to take effect shortly.  The hope is that clubs would have to spend only what they earned from club revenue alone, otherwise they cannot compete in the Champions League.  Wealthy investors wouldn't be allowed to use their money to buy players at will.  In this environment, Arsenal would be able to financially compete with the richest clubs for players and wages.

Problems with Arsenal's strategy
However there might be a few issues with this.  If this was Arsenal's strategy all along, results wouldn't pan out quite as nicely as they would have hoped. The Financial Fair Play rules are rudimentary and have easy to exploit loopholes.  It's no secret that Manchester City are primarily run by the Abu Dhabi United group who bought them out in 2008, and that FFP would constrain the club's spending.  However, to avoid those restrictions the Abu Dhabi group signed a 350 million pound deal with Etihad Airlines for stadium naming rights and shirt sponsors.  Etihad, however is based in the United Arab Emirates like the Abu Dhabi group so there is some legitimacy concerns.  Since Financial Fair Play cannot sufficiently prove that the investors are still pulling the strings behind the sponsorship deal, Manchester City wouldn't be violating any rules and would still have their investors money to operate under legitimate means.  Likewise Chelsea and other clubs with wealthy investors would get around this easy restriction.  So in this two period game, Arsenal's long run outcome would be identical to what it has been for the past 8 seasons: Profit, but no sustained success. 

Another problem is player power.  Wage demands are higher than ever, no question and in my opinion, this is what Financial Fair Play should be focusing on more rather than limiting clubs' spending potential.  Arsenal's upper bound for wages is Chelsea's lower bound for instance.  Since Financial Fair Play will have a marginal wage effect on Chelsea and Manchester City, they will only let go some of their unused players who would still demand top dollar but wouldn't command any value.  

Of course, there are some silver linings for Arsenal.  Their stadium debt is considered entirely manageable, so that will free up some additional funding and they have consistently qualified for the Champions League so they can attract top quality players.  I don't think their two period game strategy is wrong, I actually quite admire it.  It's just that they shouldn't pin their hopes on Financial Fair Play as vindication for their short run strategy because it is not the beginning of the second period so to speak.  

Note:  When I mention clubs like Manchester City and Chelsea, I only intend to highlight their financial strategy in comparison to Arsenal.  They are simply examples and there are several equivalent clubs in other leagues such as Zenit St. Petersburg in Russia and Paris Saint-Germain in France.   I do not intend to berate them or trivialize their successes.  I am merely speaking from a strategic and economic sense and how their actions could introduce new variables in planning for the long term.