Another from freakonomics:
Does panhandling work better through the web? A Houston father and son team thinks so. They gave a homeless man named Timothy Dale Edwards a sign to hold while panhandling; it directed passersby to his website, PimpThisBum.com. In less than two months, the site has garnered $50,000 in pledges and donations. The project’s creators believe its success has to do with the sign’s humor and the faux-tactless domain name.
We’d like to suggest another reason: appeals for money encouraging credit card use are far more effective than appeals calling for cash, according to a recent study
(If you haven't the time to read it, it essentially demonstrates that people will pay more for a product or service with a credit card than when using cash...... )
Tuesday 31 March 2009
Friday 27 March 2009
From freakonomics:
The Fraser Institute is offering a $1,000 top prize for proposals on what economic or public policy issue it should try to measure. More information is here. Submit a brief essay or video with a clear thesis on what should be measured, why it should be measured, and how it might be measured.
The Fraser Institute is offering a $1,000 top prize for proposals on what economic or public policy issue it should try to measure. More information is here. Submit a brief essay or video with a clear thesis on what should be measured, why it should be measured, and how it might be measured.
Thursday 26 March 2009
China's Way Forward
Interesting article on the current woes and future opportunities in China
China's Way Forward
China's Way Forward
Idle factories, moored container ships, widespread bankruptcies, massive migration back to the hinterlands, strangely clean air—the signs of depression are everywhere in China. Because it makes so many of the goods the world isn’t buying now, China stands to be worse hit than the rest of the world —just as America was during the Depression, when it was the world’s sweatshop. But like America then, China will use tough times to design innovative products that will get it the high profits and the high-value jobs Americans kept to themselves for decades. And that is very bad news for the United States, unless it uses tough times to reinvent itself, too.
Wednesday 25 March 2009
Top of the Gilt/Bond market?
With the UK Gov. failing to successfully auction it's latest issue of long dated bonds (the first time since 1995) and the US treasury forcing the market up with Bernanke's first long dated purchases, does this represent the top of the market?
Bernanke's purchases could be the mirror image of Gordon Brown's decision to sell gold at the bottom of that market in 1999.
Bernanke's purchases could be the mirror image of Gordon Brown's decision to sell gold at the bottom of that market in 1999.
Goldman: Quote of the day - “Leopards change spots”
from www.creditwritedowns.com
by Edward Harrison
If you haven’t noticed, I think the Geithner Plan, while far from perfect, has a reasonable chance of success. Marshall, too, believe the plan work as he has suggested in his last post. The optics of it are another matter.
The money quote, however, comes from Thomas Ferguson, a well-known professor at UMass-Boston:
Sort of like the original TARP plan as Paulson and Bernanke hatched it.
How about that for history proceeding in spirals, rather than straight lines?”
by Edward Harrison
If you haven’t noticed, I think the Geithner Plan, while far from perfect, has a reasonable chance of success. Marshall, too, believe the plan work as he has suggested in his last post. The optics of it are another matter.
“Goldman has already said they will repay their TARP money within a month (obviously all of this negative press scrutiny is getting to them). Easy enough to do: they’ve had billions funnelled to them via AIG, so they can now take that money and “repay” TARP. Nice circular shell game.
And that’s how the Geithner plan will work as well. They’ll all be bidding for each other’s assets at vastly inflated prices, getting a good “mark” on their books and then they’ll dump the crap with the taxpayer. I actually think the plan will work because it’s officially sanctioned larceny. It’s just like me saying, I could get rich if the government gave me the means to rob banks every time I needed money.
Is this a great country, or what?”
The money quote, however, comes from Thomas Ferguson, a well-known professor at UMass-Boston:
“Leopards change spots with amazing celerity when it pays. By the way, I think the next step is pretty obvious with the banks and the US government this morning. Institutions that get rid of toxic assets thanks to the new Geithner plan will then forthwith pay back their TARP loans. Indeed, if they are confident of their refinancing, then they may do it without participating in the program. That way they escape the constraints, and get money. So much for exec comp issues.
Sort of like the original TARP plan as Paulson and Bernanke hatched it.
How about that for history proceeding in spirals, rather than straight lines?”
Tuesday 24 March 2009
An ode about Bernie Madoff
The NY Times ran a competition to come up with a witty verse about Bernie Madoff. Here's my effort:
There once was a fund guy called Bernie,
Whose clients had one hell of a journey
They invested in trust
Found out it was bust
And then they all ended up on a gurney
There once was a fund guy called Bernie,
Whose clients had one hell of a journey
They invested in trust
Found out it was bust
And then they all ended up on a gurney
Friday 20 March 2009
President Obama on the Tonight Show with Jay Leno
For those unable to watch on TV here's the full interview on video:
The full transcript is available here
The full transcript is available here
Thursday 19 March 2009
Norway’s krone: the new safe haven currency?
I've not sounded this out with our in-house Scandinavian, but an interesting article from the FT
The Swiss National Bank’s decision to intervene to weaken the franc has left currency investors with one less haven from the financial crisis.
Its move comes at a time when there are also questions surrounding the future haven status of two other leading currencies: the dollar and the yen.
While the dollar has enjoyed a liquidity premium amid the current financial turmoil, many investors expect it to lose its allure as the full impact of large-scale US fiscal and monetary loosening filters through.
Simon Derrick at Bank of New York Mellon says: “The dollar has clearly been supported by haven flows during the current crisis.
“But, in the longer-term, the sheer scale of US fiscal spending and the lack of international capital available to support it represents a direct threat to the dollar’s strength.”
The Swiss franc has been driven lower by the SNB, which last week intervened to sell the currency, saying its recent appreciation represented an unwelcome tightening in monetary conditions.
Meanwhile, the yen has been undermined by a series of data showing a steep downturn in Japan’s export-driven economy.
This has helped stoke expectations that the Bank of Japan will follow the SNB and intervene to weaken its currency.
So where do currency investors turn now? One answer could be Norway.
David Bloom at HSBC says “The ultimate haven currency in our view is the Norwegian krone. “It’s probably the best currency in the world.”
“It’s probably the best currency in the world”
This might seem surprising. Only last December the krone dropped to a record low against the euro, as falling oil prices took their toll on the currency. But, as crude prices have stabilised, the oil producer’s currency has fought back strongly.
Indeed, the krone is one of the few currencies that has outperformed the dollar so far this year, rising more than 3 per cent to NKr6.694. It has soared 11 per cent to NKr10.925 against the euro.
Mr Bloom says: “The Norwegian krone is our preferred major currency and we expect a sustained appreciation over the next 18 months.”
Analysts say on a number of measures, the krone is near or at the top of the league among the world’s 10 most traded currencies.
Norway’s economy grew 1.3 per cent in the fourth quarter of last year and is not forecast to experience as big a downturn as most other leading economies this year.
Monetary policy is also supportive of the krone, with the Norges Bank, Norway’s central bank, like those in other commodity-producing countries such as Australia and New Zealand, not expected to resort to quantitative monetary easing to boost inflation expectations. The country also has a large current account surplus.
The cost of insuring against sovereign default in Norway through credit default swaps is the lowest among the countries with the ten most traded currencies.
Mr Bloom says that if the stock of assets Norway has salted away from its oil revenues in the Government Pension Fund of Norway is added to the mix, the bullish story for the krone is complete.
But some analysts are less glowing about the krone’s prospects.
Gavin Friend at NAB Capital agrees the krone appears one of the best of a bad lot, with a healthy current account balance and interest rates likely to lend it support.
But he says: “You are trying to win the least ugly currency contest at the moment. I can’t disagree that it might move higher, but I can’t get too enthusiastic.”
His main concerns are the lack of liquidity in the market and the krone‘s long-held correlation with oil prices.
“I struggle to see how the Norwegian krone can outperform for a sustained period if oil prices remain low,” he says.
Ashraf Laidi at CMC Markets says the fact that the krone fell against both the dollar and the euro during the turbulence following the collapse of Lehman Brothers in September means it cannot really be called a haven currency.
But he believes that the krone, along with the Australian dollar, is ideally positioned for prolonged gains as risk appetite improves.
He says the Australian dollar represents an economy with a superior growth outlook. The country’s budget surplus is expected to hover at 1 per cent of gross domestic product – which compares with the deepening deficits of the US, Europe and Japan.
He says: “The krone has the upper hand as its structural situation is boosted by a hefty current account surplus standing at 5 per cent of GDP – the biggest in the industrialised world”.
The Swiss National Bank’s decision to intervene to weaken the franc has left currency investors with one less haven from the financial crisis.
Its move comes at a time when there are also questions surrounding the future haven status of two other leading currencies: the dollar and the yen.
While the dollar has enjoyed a liquidity premium amid the current financial turmoil, many investors expect it to lose its allure as the full impact of large-scale US fiscal and monetary loosening filters through.
Simon Derrick at Bank of New York Mellon says: “The dollar has clearly been supported by haven flows during the current crisis.
“But, in the longer-term, the sheer scale of US fiscal spending and the lack of international capital available to support it represents a direct threat to the dollar’s strength.”
The Swiss franc has been driven lower by the SNB, which last week intervened to sell the currency, saying its recent appreciation represented an unwelcome tightening in monetary conditions.
Meanwhile, the yen has been undermined by a series of data showing a steep downturn in Japan’s export-driven economy.
This has helped stoke expectations that the Bank of Japan will follow the SNB and intervene to weaken its currency.
So where do currency investors turn now? One answer could be Norway.
David Bloom at HSBC says “The ultimate haven currency in our view is the Norwegian krone. “It’s probably the best currency in the world.”
“It’s probably the best currency in the world”
This might seem surprising. Only last December the krone dropped to a record low against the euro, as falling oil prices took their toll on the currency. But, as crude prices have stabilised, the oil producer’s currency has fought back strongly.
Indeed, the krone is one of the few currencies that has outperformed the dollar so far this year, rising more than 3 per cent to NKr6.694. It has soared 11 per cent to NKr10.925 against the euro.
Mr Bloom says: “The Norwegian krone is our preferred major currency and we expect a sustained appreciation over the next 18 months.”
Analysts say on a number of measures, the krone is near or at the top of the league among the world’s 10 most traded currencies.
Norway’s economy grew 1.3 per cent in the fourth quarter of last year and is not forecast to experience as big a downturn as most other leading economies this year.
Monetary policy is also supportive of the krone, with the Norges Bank, Norway’s central bank, like those in other commodity-producing countries such as Australia and New Zealand, not expected to resort to quantitative monetary easing to boost inflation expectations. The country also has a large current account surplus.
The cost of insuring against sovereign default in Norway through credit default swaps is the lowest among the countries with the ten most traded currencies.
Mr Bloom says that if the stock of assets Norway has salted away from its oil revenues in the Government Pension Fund of Norway is added to the mix, the bullish story for the krone is complete.
But some analysts are less glowing about the krone’s prospects.
Gavin Friend at NAB Capital agrees the krone appears one of the best of a bad lot, with a healthy current account balance and interest rates likely to lend it support.
But he says: “You are trying to win the least ugly currency contest at the moment. I can’t disagree that it might move higher, but I can’t get too enthusiastic.”
His main concerns are the lack of liquidity in the market and the krone‘s long-held correlation with oil prices.
“I struggle to see how the Norwegian krone can outperform for a sustained period if oil prices remain low,” he says.
Ashraf Laidi at CMC Markets says the fact that the krone fell against both the dollar and the euro during the turbulence following the collapse of Lehman Brothers in September means it cannot really be called a haven currency.
But he believes that the krone, along with the Australian dollar, is ideally positioned for prolonged gains as risk appetite improves.
He says the Australian dollar represents an economy with a superior growth outlook. The country’s budget surplus is expected to hover at 1 per cent of gross domestic product – which compares with the deepening deficits of the US, Europe and Japan.
He says: “The krone has the upper hand as its structural situation is boosted by a hefty current account surplus standing at 5 per cent of GDP – the biggest in the industrialised world”.
Wednesday 18 March 2009
Ship in "beauty dis-advantaged girls" !
I enjoyed this story:
The mayor of an isolated town in Queensland, Australia, was vilified for making the following statement: “May I suggest that if there are five blokes to every girl, we should find out where there are beauty-disadvantaged women and ask them to proceed to Mt. Isa.”
He is simply recognizing that in the dating/marriage markets looks are one of the commodities traded; and there is substantial evidence, for example, here suggesting that uglier women marry men with less human capital, ie men who can earn less. That the mayor is asking ugly women to come to Mt. Isa is just an attempt to get them where their scarcity might allow them to mitigate their “disadvantage” and benefit from the surplus of single men.
Gains from trade of course, make sense, although the mayor’s statement is somewhat crude. Interestingly, the head of the Chamber of Commerce noted that, “There’s a lot of anger circulating among the community… there’s a lot of women voicing their opinions.”
I wonder if the women’s anger is at the mayor’s crudeness, or whether it is a standard response by monopolists who are threatened with competition??
The mayor of an isolated town in Queensland, Australia, was vilified for making the following statement: “May I suggest that if there are five blokes to every girl, we should find out where there are beauty-disadvantaged women and ask them to proceed to Mt. Isa.”
He is simply recognizing that in the dating/marriage markets looks are one of the commodities traded; and there is substantial evidence, for example, here suggesting that uglier women marry men with less human capital, ie men who can earn less. That the mayor is asking ugly women to come to Mt. Isa is just an attempt to get them where their scarcity might allow them to mitigate their “disadvantage” and benefit from the surplus of single men.
Gains from trade of course, make sense, although the mayor’s statement is somewhat crude. Interestingly, the head of the Chamber of Commerce noted that, “There’s a lot of anger circulating among the community… there’s a lot of women voicing their opinions.”
I wonder if the women’s anger is at the mayor’s crudeness, or whether it is a standard response by monopolists who are threatened with competition??
Best Business Blog Award Winner 2008 ( and Cramer v Stewart)
I came across deepcapture.com which won a significant blogging award last year.
It's an interesting site, run by Dr Patrick Byrne and it sells itself as "a work of investigative journalism examining the growing threat to our financial system posed by illegal naked short selling, stock manipulation, and the destruction of public companies."
In the course of reading through its' content, I came across Jim Cramer, who becomes a central character in Dr Byrne's writings.
Jim Cramer is, of course, the star presenter of CNBC's Mad Money . Most recently he's had a series of run-ins with Jon Stewart on The Daily Show, see the video below:
It's an interesting site, run by Dr Patrick Byrne and it sells itself as "a work of investigative journalism examining the growing threat to our financial system posed by illegal naked short selling, stock manipulation, and the destruction of public companies."
In the course of reading through its' content, I came across Jim Cramer, who becomes a central character in Dr Byrne's writings.
Jim Cramer is, of course, the star presenter of CNBC's Mad Money . Most recently he's had a series of run-ins with Jon Stewart on The Daily Show, see the video below:
Tuesday 17 March 2009
The philanthropist Paul Newman
Paul Newman will always be best known for his work as an actor. But since 1982, he also made his mark as an entrepreneur with his Newman’s Own line of food products. A company that started as a joke between two friends, and never expected to turn a profit, has turned into a fixture in supermarkets around the world. Newman’s Own found its success from accessing a niche market that had been under-serviced. The food products they provide are created with organic ingredients – a strategy which hardly seems revolutionary today, but in the 1980s, was somewhat novel.
In addition Newman discreetly marketed the fact that buying into the Newman’s name would mean that you were contributing to a charity. The novelty of this approach certainly drew some customers in, just as the organic ingredients did. Starting with salad dressing and branching out to a variety of foods, Newman’s Own generated over $250 million in profits in its first two and a half decades.
What makes Newman unique among entrepreneurs is that he then donated all of that wealth to charity. So although Newman was creating wealth, he was not creating it for himself, instead giving it directly to others.
No sign of economic recovery in next 3 or 4 years?
Says Neil Woodford of Invesco Perpetual
From Citywire
Woodford, who runs the £5.3 billion Invesco Perpetual Income and £7.3 billion Invesco Perpetual High Income funds, said he did not believe there were any 'green shoots' around, nor that there would be any in the near future.
He said: 'I think we are in a pretty difficult environment globally and the UK and the US are having a particularly difficult time. The unsual characteristic of this crisis is that it has been running for such a long time and we are unlikely to see any economic recovery soon.'
'My view is that this is going to go a lot longer than the second half of this year. This crisis will encompass a long adjustment...the scale of debt build up is unprecedented. The process of rebalancing the world economy will take many years. We could be in a weak economic environment for three or four years.
'I don't expect to see a sustained growth in this economy or in America for a significant time, three or four years'.
Over the past three years, Woodford has returned -6.1% with the High Income fund and 6.9% with the Invesco Perpetual Income fund while the FTSE All Share TR benchmark fell 27.2% during that period.
From Citywire
Guess where we are now?
I saw the chart below on another website, the author believes we're at the point of anxiety still quite high on the curve.
I believe we're a bit further down, some certainly are still in denial, but most are between fear and desperation......
I believe we're a bit further down, some certainly are still in denial, but most are between fear and desperation......
Monday 16 March 2009
A snapshot around the world
The owner of Apogee Communications, a California based videogame company decided to ask his global customers how the recession was affecting them, here's some of the responses:
GERMANY: “While everyone is talking about the economic crisis, its direct impact hasn’t arrived here yet. For me, nothing has changed at all.”
SWEDEN: “Living in Gothenburg, the economic crisis has struck the city really hard. Since VOLVO is a big employer here, almost everyone you meet knows someone who has been affected by their cutting back. I see people around me who decided to sell their houses etc. since they can´t afford living there on a reduced salary.”
SPAIN: “In Spain the crisis is being especially intense because a great deal of our economic growth was based on construction. Since getting a mortgage or credit line now is much harder, construction is totally down and unemployment is rising to 20% and above. Fortunately, people around me do not depend directly on construction and no serious effects are seen between friends and family, although everybody is concerned and worried with the unstoppable unemployment rate and the trend is to spend as little money as possible just in case they lose their jobs.”
NORWAY: “Not much has happened here. Those who have stocks have lost half of their money. That’s all. Nobody I know have lost their jobs in Norway. It costs more to rent an apartment than ever. I’m working more than normally in order to prepare for bad days.”
JAPAN: “About the economic crisis, nobody has been laid off within my family or among my friends fortunately, but the owner of an Indian restaurant I go often told me that the economic crisis certainly affected to their business since there are fewer customers after the collapse of Lehman Brothers. On the other hand, there are flash benefits to be paid (12,000 yen) by the government within a month, so my mother for example, is looking forward to buy a Blueray player with it.”
INDONESIA: “People in my local region (Indonesia) are not much affected by the economic crisis that has occurred in USA. The situation is still tolerable and the effects not too significant. We were currently focusing on the political campaigns for the upcoming general election :-)”
POLAND: “My personal view - one with which most people disagree - it that it is mostly panic.”
BRAZIL: “I have a regular job (as a programmer) in an advertising agency. People usually say that when things get rough, the advertising budget is one of the first things to get cut. Not from what I’m experiencing. My agency is acquiring more clients than ever since I’ve been there, and hiring new people all the time. None of my friends are suffering any side effects from the so-called crisis either. My father runs his own thriving business as well, a marina. You’d think that during a crisis people would give up their high-priced luxuries such as boats, but again, that’s not what we observed. He’s been so busy lately with the summer and all that I barely even saw him during these last few months, except for Christmas and New Year’s.”
LATVIA: “Everything’s just peachy. The government resigned last week. The new prime minister just made an announcement on his new government a few hours ago. Inflation rate hit 15.4 % in 2008 and the VAT has been raised to 21% since January 1st. Prices rise so fast you can actually see the difference from one month to another. I guess the economic and financial crisis is everywhere. I miss living in the US.”
RUSSIA: “I am not affected by the local brainwashing mass media. As far as I know, TV broadcast programs or any other mass media sources, including newspapers or radio shows, are trying to blame the US for the crisis (as if the cold war is back again) to distract people from the predicament in Russia - though it’s not a secret to anyone that the inflation rate (not the official number) is over 200% for the past year. … I see prices rising by a ruble for every small article of food every month. … The xenophobic nature, as well as envy of most people make them rebuke others, mostly the US, for the crisis. Which I can understand - people usually are conformists by nature and they repeat whatever they hear from the masses or the mass media. I, personally, blame no one for the crisis, every country had a large role in contributing to it. And I have no doubts that the larger portion might have come from Russia itself.”
source: Apogee Communications
GERMANY: “While everyone is talking about the economic crisis, its direct impact hasn’t arrived here yet. For me, nothing has changed at all.”
SWEDEN: “Living in Gothenburg, the economic crisis has struck the city really hard. Since VOLVO is a big employer here, almost everyone you meet knows someone who has been affected by their cutting back. I see people around me who decided to sell their houses etc. since they can´t afford living there on a reduced salary.”
SPAIN: “In Spain the crisis is being especially intense because a great deal of our economic growth was based on construction. Since getting a mortgage or credit line now is much harder, construction is totally down and unemployment is rising to 20% and above. Fortunately, people around me do not depend directly on construction and no serious effects are seen between friends and family, although everybody is concerned and worried with the unstoppable unemployment rate and the trend is to spend as little money as possible just in case they lose their jobs.”
NORWAY: “Not much has happened here. Those who have stocks have lost half of their money. That’s all. Nobody I know have lost their jobs in Norway. It costs more to rent an apartment than ever. I’m working more than normally in order to prepare for bad days.”
JAPAN: “About the economic crisis, nobody has been laid off within my family or among my friends fortunately, but the owner of an Indian restaurant I go often told me that the economic crisis certainly affected to their business since there are fewer customers after the collapse of Lehman Brothers. On the other hand, there are flash benefits to be paid (12,000 yen) by the government within a month, so my mother for example, is looking forward to buy a Blueray player with it.”
INDONESIA: “People in my local region (Indonesia) are not much affected by the economic crisis that has occurred in USA. The situation is still tolerable and the effects not too significant. We were currently focusing on the political campaigns for the upcoming general election :-)”
POLAND: “My personal view - one with which most people disagree - it that it is mostly panic.”
BRAZIL: “I have a regular job (as a programmer) in an advertising agency. People usually say that when things get rough, the advertising budget is one of the first things to get cut. Not from what I’m experiencing. My agency is acquiring more clients than ever since I’ve been there, and hiring new people all the time. None of my friends are suffering any side effects from the so-called crisis either. My father runs his own thriving business as well, a marina. You’d think that during a crisis people would give up their high-priced luxuries such as boats, but again, that’s not what we observed. He’s been so busy lately with the summer and all that I barely even saw him during these last few months, except for Christmas and New Year’s.”
LATVIA: “Everything’s just peachy. The government resigned last week. The new prime minister just made an announcement on his new government a few hours ago. Inflation rate hit 15.4 % in 2008 and the VAT has been raised to 21% since January 1st. Prices rise so fast you can actually see the difference from one month to another. I guess the economic and financial crisis is everywhere. I miss living in the US.”
RUSSIA: “I am not affected by the local brainwashing mass media. As far as I know, TV broadcast programs or any other mass media sources, including newspapers or radio shows, are trying to blame the US for the crisis (as if the cold war is back again) to distract people from the predicament in Russia - though it’s not a secret to anyone that the inflation rate (not the official number) is over 200% for the past year. … I see prices rising by a ruble for every small article of food every month. … The xenophobic nature, as well as envy of most people make them rebuke others, mostly the US, for the crisis. Which I can understand - people usually are conformists by nature and they repeat whatever they hear from the masses or the mass media. I, personally, blame no one for the crisis, every country had a large role in contributing to it. And I have no doubts that the larger portion might have come from Russia itself.”
source: Apogee Communications
Friday 13 March 2009
Will the swiss sail on QE2 ?
I received this by email from an interesting website www.creditwritedowns.com
Apparently, the Swiss franc is too high — or so says the Swiss central bank. As a result, they are selling francs in the foreign exchange market to get the franc to come down. There has been a lot of speculation about the Swiss and their plans to devalue the Swiss franc, including on this site. It now seems clear that devaluation is where things are headed. Quantitative easing (QE) may be next.
The Swiss are not a member of the Eurozone. They are not even a member of the EU. Like Norway (and Iceland, for that matter), the Swiss are on their own. This has benefits. The Impossible Trinity is a non-sequitur. One can print money and devalue at the heart’s content. The Brits have shown us the power of devaluing a currency from 2.11 per U.S. Dollar to 1.43 per U.S. Dollar. Surely, the Swiss can do the same. In fact, in the case of the Swiss, devaluation would mean that their debtors will be able to repay their loans more easily. I fully expect the Swiss National Bank understands this and is prepared to crank up the presses if they have not begun to do so already.
Just the other day, the Brits started quantitative easing a.k.a. printing money — joining the Americans and the Japanese in plucking bills off the money tree at the central bank.
Who’s next to get on the QE2 - its a lovely ship? Why, Switzerland, of course.
The Swiss franc plunged to its lowest level so far this year on Thursday after the Swiss National Bank said it was set to make purchases in the foreign exchange market to halt the currency’s rise against the euro.
The Swiss franc’s haven status has been heightened by the recent market turmoil and seen it rise 9 per cent on a trade-weighted basis since July and come close to its record high around SFr1.43 against the euro in recent weeks.
The SNB said the Swiss franc’s strength represented an “inappropriate tightening of monetary conditions” as it battled against a sharp deterioration in the Swiss economy.
“In view of this development, the SNB has decided to purchase foreign currency on the foreign exchange market to prevent any further appreciation of the Swiss franc against the euro,” the central bank said.
The central bank said it had implemented its decision, with traders confirming that the SNB had been active in the market.
This represented the first time a major central bank has intervened in the foreign exchange markets since 2004 when the Bank of Japan sought to weaken the yen.
The Swiss franc dropped 3.2 per cent to SFr1.5290 against the euro and dropped 3.7 per cent to $1.1952 against the dollar.
Marc Chandler at Brown Brothers Harriman said even though the SNB’s intervention to weaken the franc was enjoying immediate success, the policy’s longer term prospects were more questionable.
But do the Swiss have any choice? The Swiss are going to do QE too.
“The SNB is certainly next in line for such moves,” said Jan Amrit Poser, chief economist at Bank Sarasin in Zurich. “The SNB probably needs to do more. It’s game over for conventional monetary policy.”
Apparently, the Swiss franc is too high — or so says the Swiss central bank. As a result, they are selling francs in the foreign exchange market to get the franc to come down. There has been a lot of speculation about the Swiss and their plans to devalue the Swiss franc, including on this site. It now seems clear that devaluation is where things are headed. Quantitative easing (QE) may be next.
The Swiss are not a member of the Eurozone. They are not even a member of the EU. Like Norway (and Iceland, for that matter), the Swiss are on their own. This has benefits. The Impossible Trinity is a non-sequitur. One can print money and devalue at the heart’s content. The Brits have shown us the power of devaluing a currency from 2.11 per U.S. Dollar to 1.43 per U.S. Dollar. Surely, the Swiss can do the same. In fact, in the case of the Swiss, devaluation would mean that their debtors will be able to repay their loans more easily. I fully expect the Swiss National Bank understands this and is prepared to crank up the presses if they have not begun to do so already.
Just the other day, the Brits started quantitative easing a.k.a. printing money — joining the Americans and the Japanese in plucking bills off the money tree at the central bank.
Who’s next to get on the QE2 - its a lovely ship? Why, Switzerland, of course.
The Swiss franc plunged to its lowest level so far this year on Thursday after the Swiss National Bank said it was set to make purchases in the foreign exchange market to halt the currency’s rise against the euro.
The Swiss franc’s haven status has been heightened by the recent market turmoil and seen it rise 9 per cent on a trade-weighted basis since July and come close to its record high around SFr1.43 against the euro in recent weeks.
The SNB said the Swiss franc’s strength represented an “inappropriate tightening of monetary conditions” as it battled against a sharp deterioration in the Swiss economy.
“In view of this development, the SNB has decided to purchase foreign currency on the foreign exchange market to prevent any further appreciation of the Swiss franc against the euro,” the central bank said.
The central bank said it had implemented its decision, with traders confirming that the SNB had been active in the market.
This represented the first time a major central bank has intervened in the foreign exchange markets since 2004 when the Bank of Japan sought to weaken the yen.
The Swiss franc dropped 3.2 per cent to SFr1.5290 against the euro and dropped 3.7 per cent to $1.1952 against the dollar.
Marc Chandler at Brown Brothers Harriman said even though the SNB’s intervention to weaken the franc was enjoying immediate success, the policy’s longer term prospects were more questionable.
But do the Swiss have any choice? The Swiss are going to do QE too.
“The SNB is certainly next in line for such moves,” said Jan Amrit Poser, chief economist at Bank Sarasin in Zurich. “The SNB probably needs to do more. It’s game over for conventional monetary policy.”
Thursday 12 March 2009
When is a pint not a pint?
Answer: In a recession....
Sometimes even the smartest companies do really dumb things....
In the US, Haagen-Daz have reduced the size of their pint of ice cream from 16 oz to 14 oz citing "Over the past few years, the cost of all-natural ingredients, like fresh eggs, top-quality raspberries and Madagascar vanilla, has increased by an average of 25%. The energy required to make and deliver our products has risen in cost as well, despite the recent dip in gasoline prices"
However one company's PR disaster is another's opportunity. Ben and Jerry's stated thus:
"One of our competitors (think funny-sounding European name) recently announced they will be downsizing their pints from 16 to 14 ounces to cover increased ingredient and manufacturing costs and help improve their bottom line," the statement said.
"We understand that in today's hard economic times businesses are feeling the pinch. We also understand that many of you are also feeling the same, and think now more than ever you deserve your full pint of ice cream."
Sometimes even the smartest companies do really dumb things....
In the US, Haagen-Daz have reduced the size of their pint of ice cream from 16 oz to 14 oz citing "Over the past few years, the cost of all-natural ingredients, like fresh eggs, top-quality raspberries and Madagascar vanilla, has increased by an average of 25%. The energy required to make and deliver our products has risen in cost as well, despite the recent dip in gasoline prices"
However one company's PR disaster is another's opportunity. Ben and Jerry's stated thus:
"One of our competitors (think funny-sounding European name) recently announced they will be downsizing their pints from 16 to 14 ounces to cover increased ingredient and manufacturing costs and help improve their bottom line," the statement said.
"We understand that in today's hard economic times businesses are feeling the pinch. We also understand that many of you are also feeling the same, and think now more than ever you deserve your full pint of ice cream."
Wednesday 11 March 2009
Yes, we're in a depression
Says Richard Posner in his forthcoming book A Failure of Capitalism: The Crisis of ’08 and the Descent Into Depression
Here's a couple of excerpts:
That last line about economists is pretty biting, and not very arguable.
Here’s a bit more on Posner’s decision to call the current crisis a depression:
Reproduced from the freakonomics blog
Here's a couple of excerpts:
The world’s banking system collapsed last fall, was placed on life support at a cost of some trillions of dollars, and remains comatose. We may be too close to the event to grasp its enormity. A vocabulary rich only in euphemisms calls what has happened to the economy a “recession.” We are well beyond that. We are in the midst of the biggest economic crisis since the Great Depression of the 1930’s. It began as a recession — that is true — in December 2007, though it was not so gentle a downturn that it should have taken almost a year for economists to agree that a recession had begun then. (Economists have become a lagging indicator of our economic troubles.)
That last line about economists is pretty biting, and not very arguable.
Here’s a bit more on Posner’s decision to call the current crisis a depression:
The word itself is taboo in respectable circles, reflecting a kind of magical thinking: if we don’t call the economic crisis a “depression,” it can’t be one. But no one who has lived through the modest downturns in the American economy of recent decades could think them comparable to the present situation. … It is the gravity of the economic downturn, the radicalism of the government’s responses, and the pervading sense of crisis that mark what the economy is going through as a depression.
Reproduced from the freakonomics blog
Monday 9 March 2009
Blackberry Ad - Effective or not?
This 17 second "viral" ad appeared on youtube at the end of February. In its' first week it had more than 500,000 viewers and appeared on more than 180 blogs.
In my opinion, very effective!
Saturday 7 March 2009
Michael Lewis on Iceland
Demonstrators in front of Iceland’s parliament building, in Reykjavík’s Austurvollur Square, on January 31.
Photographs by Jonas Fredwall Karlsson.
Iceland’s de facto bankruptcy—its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance—resulted from a stunning collective madness.
What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power?
In Reykjavík, where men are men, and the women seem to have completely given up on them, the author follows the peculiarly Icelandic logic behind the meltdown.
by MICHAEL LEWIS April 2009
The full article is here
Friday 6 March 2009
Knowing your audience.....
A disappointed Coca Cola salesman returns from his Middle East assignment. A friend asked, "Why weren't you successful with the Arabs?" The salesman explained: "When I got posted to the Middle East, I was very confident that I would make a good sales pitch as Cola is virtually unknown there. But, I had a problem I didn't know to speak Arabic. So, I planned to convey the message through three posters...
First poster: A man lying in the hot desert sand...totally exhausted and fainting.
Second poster: The man is drinking our Cola.
Third poster: Our man is now totally refreshed.
And then these posters were pasted all over the place. "Then that should have worked!" said the friend. "It should have!?" said the salesman. "But I didn't realize that Arabs read from right to left!!"
First poster: A man lying in the hot desert sand...totally exhausted and fainting.
Second poster: The man is drinking our Cola.
Third poster: Our man is now totally refreshed.
And then these posters were pasted all over the place. "Then that should have worked!" said the friend. "It should have!?" said the salesman. "But I didn't realize that Arabs read from right to left!!"
Thursday 5 March 2009
Are we right to demand our kids to work harder?
I'm interested in the whole concept of does hard work bring greater success ? especially amongst children. My natural inclination is to let them find their own level, however, there are times I feel that I'm doing them a disservice and that I should force them to work much harder than they do, in order to maximise their chances of success later in life.
I was impressed but also horrified in equal measure, to learn that Obama's mother had him up at 4.30 most mornings to go through his lessons. The video clip is below:
Elsewhere, Malcolm Gladwell (the author of The Tipping Point and Blink) has written a new book, Outliers, The stories of success.
In the book he describes the success that the Chinese as a race have, in part, is down to the more readily accepted hard work ethic. He quotes a Chinese Proverb:
No one who can rise before dawn 360 days a year fails to make his family rich
He argues that the greater the opportunity for hard work, for example longer school hours and more home study, the greater the opportunities for success later in life.
I'd be interested in anyone's thoughts and comments
I was impressed but also horrified in equal measure, to learn that Obama's mother had him up at 4.30 most mornings to go through his lessons. The video clip is below:
Elsewhere, Malcolm Gladwell (the author of The Tipping Point and Blink) has written a new book, Outliers, The stories of success.
In the book he describes the success that the Chinese as a race have, in part, is down to the more readily accepted hard work ethic. He quotes a Chinese Proverb:
No one who can rise before dawn 360 days a year fails to make his family rich
He argues that the greater the opportunity for hard work, for example longer school hours and more home study, the greater the opportunities for success later in life.
I'd be interested in anyone's thoughts and comments
Wednesday 4 March 2009
Tuesday 3 March 2009
An excellent Dilbert Cartoon
For our senior readers - if it's too small to read click on the image to expand it!
Monday 2 March 2009
A prophecy from 1867
Familiar as we all are with the works of Karl Marx, I am indebted to Mattias for forwarding this timely prophecy from Das Kapital written in 1867:
Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable.
The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised, and the State will have to take the road which will eventually lead to communism
Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable.
The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised, and the State will have to take the road which will eventually lead to communism
Quantifying the Nightmare Scenarios
From freakonomics - one of my favourite websites:
There’s a neat mathematical trick, by which we can use option prices to quantify the probability of the stock market falling by various amounts. Breeden and Litzenberger (1978) show that by comparing the prices of options at adjacent strike prices, you can calculate the approximate value of securities that would pay $1 if the underlying stock traded in a certain range on expiry day.
(Economists know these as Arrow-Debreu securities; they approximate what option traders call “butterfly spreads” when strike prices are close together.)
“Option prices suggest that there is a very real chance of, dare I write it, another Great Depression.”
For example, using last Friday’s options prices, we can calculate that it would cost 10 cents to buy a portfolio of options that pays $1 if the S&P 500 falls below 250 on December 18, 2010. If markets were risk-neutral (I’ll come back to this), we could infer that the market thought there was a 10 percent probability that the value of U.S. stocks could fall to one-third their current value by the end of next year. Such a drop would leave the index down to one-sixth of its peak level in late 2007. By way of comparison, in the Great Depression the value of stocks fell to between one-sixth and one-seventh of their earlier values.
Here is a graph of the probability distribution for the value of the S&P 500 in December 2010 — as implied by the options markets. The red line uses option prices from the end of September 2008 (after Lehman’s collapse); the blue line uses prices from Friday. As you can see, the probability of a substantial drop in the value of stocks has moved from relatively remote to quite substantial. Not only has the distribution shifted to the left, but the left tail has gotten thicker, suggesting there’s much more concern about extremely bad outcomes. (The dashed line indicates where I have used the pricing of the last two options to infer prices of options that are further out of the money.)
This graph yields a pretty interesting story. The most likely scenario is the S&P 500 ends in 2010 between 800 and 1,000, which is up 5 percent to 30 percent from today. But today’s market is being held down by the prospect of a Depression-like decline in stocks.
What do these bad-news scenarios look like? Surely the value of financial firms would be zero, but as these are only around 10 percent of today’s index, the dismal outcomes must be more widespread. Profits would have to fall significantly, with little hope of medium-term recovery. Such a decline in profits would go hand in hand with a sustained decline in incomes across all sectors.
There’s an important caveat to all this. Even when the market price of a bundle of options paying $1 if “the S&P 500 is below 250 in December 2010″ costs 10 cents, we cannot infer that there’s a 10 percent chance of this happening. Since this security would help hedge against extreme wealth losses, investors should be willing to pay an insurance premium. Furthermore, the investors buying these securities could be panicking and overpaying for them, and the more sanguine may be unable to offset this fear if their money is tied up elsewhere.
Regardless of whether it reflects risk aversion, panic, or a true probability, the 10 cent price being paid for a dollar of Depression insurance highlights the fears that are holding stocks down. Policymakers have been trying to reassure investors that they understand the risks of depression and will do what is needed to avoid them. These graphs provide a measure of how far they have to go in convincing us.
Quantifying the Nightmare Scenarios
By Eric Zitzewitz
There’s no shortage of fear about the economy. But just how fearful should we be? Perhaps financial markets can provide some guidance.
There’s a neat mathematical trick, by which we can use option prices to quantify the probability of the stock market falling by various amounts. Breeden and Litzenberger (1978) show that by comparing the prices of options at adjacent strike prices, you can calculate the approximate value of securities that would pay $1 if the underlying stock traded in a certain range on expiry day.
(Economists know these as Arrow-Debreu securities; they approximate what option traders call “butterfly spreads” when strike prices are close together.)
“Option prices suggest that there is a very real chance of, dare I write it, another Great Depression.”
For example, using last Friday’s options prices, we can calculate that it would cost 10 cents to buy a portfolio of options that pays $1 if the S&P 500 falls below 250 on December 18, 2010. If markets were risk-neutral (I’ll come back to this), we could infer that the market thought there was a 10 percent probability that the value of U.S. stocks could fall to one-third their current value by the end of next year. Such a drop would leave the index down to one-sixth of its peak level in late 2007. By way of comparison, in the Great Depression the value of stocks fell to between one-sixth and one-seventh of their earlier values.
Here is a graph of the probability distribution for the value of the S&P 500 in December 2010 — as implied by the options markets. The red line uses option prices from the end of September 2008 (after Lehman’s collapse); the blue line uses prices from Friday. As you can see, the probability of a substantial drop in the value of stocks has moved from relatively remote to quite substantial. Not only has the distribution shifted to the left, but the left tail has gotten thicker, suggesting there’s much more concern about extremely bad outcomes. (The dashed line indicates where I have used the pricing of the last two options to infer prices of options that are further out of the money.)
This graph yields a pretty interesting story. The most likely scenario is the S&P 500 ends in 2010 between 800 and 1,000, which is up 5 percent to 30 percent from today. But today’s market is being held down by the prospect of a Depression-like decline in stocks.
What do these bad-news scenarios look like? Surely the value of financial firms would be zero, but as these are only around 10 percent of today’s index, the dismal outcomes must be more widespread. Profits would have to fall significantly, with little hope of medium-term recovery. Such a decline in profits would go hand in hand with a sustained decline in incomes across all sectors.
There’s an important caveat to all this. Even when the market price of a bundle of options paying $1 if “the S&P 500 is below 250 in December 2010″ costs 10 cents, we cannot infer that there’s a 10 percent chance of this happening. Since this security would help hedge against extreme wealth losses, investors should be willing to pay an insurance premium. Furthermore, the investors buying these securities could be panicking and overpaying for them, and the more sanguine may be unable to offset this fear if their money is tied up elsewhere.
Regardless of whether it reflects risk aversion, panic, or a true probability, the 10 cent price being paid for a dollar of Depression insurance highlights the fears that are holding stocks down. Policymakers have been trying to reassure investors that they understand the risks of depression and will do what is needed to avoid them. These graphs provide a measure of how far they have to go in convincing us.
Will Social Networks On the Web Ever Make Money?
Well perhaps this blog might!
Interesting article from Forbes, about the ability (or not) of Facebook, Linkedin, Twitter etc to turn their fast number of users into cash generators.
Interesting article from Forbes, about the ability (or not) of Facebook, Linkedin, Twitter etc to turn their fast number of users into cash generators.
In the last week or so, there have been a number of events that bring up the big question: Will Web-based social networks ever become significant businesses? Or, put another way: Do these social networks--Twitter, Facebook, LinkedIn, MySpace--have the ability to "monetize" their audiences?
My answer: While today, these may not look like great businesses (which hasn't stopped investors' willingness to fund them), I'm convinced that the daily interactions of their vast memberships--and their users' willingness to share their interests, tastes, relationships and intentions, and the massive amounts of data around users' behavior--will eventually lead to substantial revenues and profits. But I don't think that those revenues will come just from the Web advertising standards of banners and contextual search links.
Sunday 1 March 2009
New recruit for our Saturdays?
This is Madin Mohamed, a 6 year old who already has many European clubs following him. No need to guess who would win the trophy each week if he joined us!
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