June 1st, 2009
Two charts that tell interesting stories.
The first is a fascinating look at how money is spent by different wealth classes. For instance, the lowest 20% spends about a third of the top 20% on food, but about a fifth on entertainment etc.
The second chart is shows how much faster new technologies have been adopted recently. (look for steeper lines).
Thanks to SimoleonSense for pointing this out (probably my favorite blogger) and the people at ThinkorSwim for making it available. (BTW as an aside, ThinkorSwim has a very high number of SBU grads working there! Great place.
Tags: a-very-high, but-about, for-making, for-pointing, grads-working, have-been, how-money, img-width, lowest, people, second-chart, spends-about, steeper-lines, the-lowest, thinkor
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June 1st, 2009
Central Bank independence is important for the long term health of any economy. That has been fairly well established. Indeed, in the early 1990s Laurance Summers (and others) argued the importance of Fed independence for keeping inflation in check.
Why? Governments (read politicians) have an incentive to grow the money supply very quickly for short term gains at the expense of longer term inflation. Without the independence it is generally the case that
By Scott Beaulier and William Mounts in the WSJ: Obama Should Reaffirm Fed Independence - WSJ.com:
“While understanding the Great Depression is crucial, there is another event in America’s monetary history that must be remembered: The ‘Accord’ of 1951. In this case, Mr. Bernanke should aim to repeat the past.
The accord struck between the Fed and the Treasury in March 1951 fundamentally changed the relationship between the two bodies that had developed during World War II.”
and later
“Without a firm commitment by the Obama administration to maintain central-bank independence at all costs, the Fed may become subordinate to the Treasury as it institutes the president’s expansive plans to inject government into the economy. If this is the case (to paraphrase Milton Friedman) fiscal deficits will always and everywhere mean inflation.”
It should also be noted however that Summers also later wrote that there seemed to be less relationship between Central Bank independence and unemployment rates and other real economic data.
Tags: central-bank, for-making, for-pointing, great, have-been, how-money, repeat-the-past, the-lowest, thinkor, william-mounts
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May 31st, 2009
Will Higher Education Be the Next Bubble to Burst? - Chronicle.com:
“Is it possible that higher education might be the next bubble to burst? Some early warnings suggest that it could be.
….According to the National Center for Public Policy and Higher Education, over the past 25 years, average college tuition and fees have risen by 440 percent — more than four times the rate of inflation and almost twice the rate of medical care.”
What can be done?
“What can they do to keep the bubble from bursting? They can look for more efficiency and other sources of tuition…..recently argued for the year-round university, noting that the two-semester format now in vogue places students in classrooms barely 60 percent of the year,….Colleges can also make productivity gains by using technology and re-engineering courses. For the past 10 years, the National Center for Academic Transformation, supported by the Pew Charitable Trusts, has helped major universities use technology to cut instructional costs by an average of 40 percent while reducing the number of large course sections, graduate teaching assistants, and faculty time on correcting quizzes.”
Tags: bubble, education, higher-education, next, public-policy, rate, twice-the-rate, use-technology
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May 31st, 2009
THE FREEDOM NETWORK AUDIO PORTAL - Free & Easy Access to worldwide Broadcasts on Economics, Social Security, Policy and Strategy:
“Podcasts on Economics, Social Security, Strategy, Liberty & Public Policy”
Wow. Amazing stuff. Thanks to Wayne Marr for point it out.
Tags: access, broadcasts, economics, education, for-point, public-policy, the, twice-the-rate
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May 31st, 2009
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Tags: max gxl, max international, maxgxl, testimonials
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May 31st, 2009
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Tags: australia, max international, maxgxl
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May 29th, 2009
Calendar and other similar anomalies are generally very interesting and students love reading about them (well as much as they love reading anything in finance) but do not fit well with efficient markets.
For instance, why? Consider the January effect If stocks were predictably up in January and investors had calendars that showed December was the month before January, investors would buy in December. etc etc.
The following article form CNN addresses this and other anomalies.
Selling stocks in summer often isn’t a smart thing to do - May. 29, 2009:
“Wall Street traders have a lot of funny ways to try and predict stock performance.
There’s the hemline indicator, which tries to equate fashion trends to stocks. According to that maxim, the shorter women’s skirts are, the better stocks should do. It’s also known as the bull market, bare knees phenomenon. Classy.
Then there’s the Super Bowl indicator. Stocks are supposed to go up in a year when an ‘old’ NFL team wins”
Tags: a-smart-thing, anomalies, cnn, had-calendars, known-as-the, nfl, predict-stock, shorter, street, super, super-bowl
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May 29th, 2009
In class we teach that IPOs are very risky and have historically been underpriced in short run and then overshoot their value and are overpriced in longer run. (see Ritter’s work on this)
The standard academic explanation for this is that with a float lower than shares outstanding the stock is very difficult to be shorted (See Bradley and Jordan 2002) and there are no options for a period so little way for those who believe the stock is overpriced to act on this mispricing.
While I have taught that many times and truly do believe it to be correct, I am always a bit concerned when academics meet practitioners. So I was very happy to hear that they agree.
From Research 2.0 Who is eating at the OpenTable?:
“We just published a research snapshot on OpenTable (OPEN - $28.75) which includes our typical intrinsic valuation analysis as well as a view of the company. Unfortunately for current investors the company is worth about 65% less than it’s currently trading at in the market.
This is explained in good part to the fact that you can’t short the stock and there are no options as yet since they just came public. But all this does is delay the inevitable decline to much lower prices before new long-term investors can buy shares.”
Tags: a-float-lower, cnn, eating-at-the, had-calendars, investors-the, known-as-the, mispricing, new-long-term, opentable, options-as-yet, overshoot-their, predict-stock, short-the-stock, street, super-bowl
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May 28th, 2009
WOW! GM Bondholders reached a deal! SHOCKED.
They get 10% plus warrants to buy more shares.
G.M. Reaches a Deal With Bondholder Committee - DealBook Blog - NYTimes.com:
“General Motors said in a regulatory filing on Thursday that it has proposed a new deal to a committee representing many of its largest bondholders, offering up to a 25 percent stake in exchange for not opposing G.M.’s reorganization plan”
Tags: a-committee-representing, a-new-deal, bondholders, buy-more, exchange-for, filing-on-thursday, general-motors, its-largest, not-opposing, percent-stake, plus-warrants, wow
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May 28th, 2009
Contrary to the attention grabbing headline, the Jury is still out on microfinance. Here is at least some evidence that it does not do all that we hope. That said, the conclusion is definitely more controversial.
The verdict is in on microfinance - PSD Blog - The World Bank Group:
“The results from the first large-scale randomized trial of access to microfinance indicate that it comes up short in many areas of human development. 52 of 104 slums in Hyderabad were randomly selected to receive new branches of a microfinance outfit called Spandana. Abhijit Banerjee and the other randomistas from the Poverty Action Lab describe the results in The Miracle of Microfinance? Evidence from a Randomized Evaluation:
…microcredit does have important effects on business outcomes and the composition of household expenditure. Moreover, these effects differ for different households, in a way consistent with the fact that a household wishing to start a new business must pay a fixed cost to do so. Existing business owners appear to use microcredit to expand their businesses….
[BUT] … it appears to have no discernible effect on education, health, or womens’ empowerment. Of course, after a longer time, when the investment impacts (may) have translated into higher total expenditure for more households, it is possible that impacts on education, health, or womens’ empowerment would emerge. However, at least in the short-term (within 15-18 months), microcredit does not appear to be a recipe for changing education, health, or womens’ decision-making.:”
The headline aside, the authors correctly point out that 15-18 months is a short a time period to measure dramatic changes. That the loans help the business (which in the longer term would be predicted to positively impact education, wealth, health, and MAYBE women’s equality issues), is enough for me to remain skeptical of any article saying the verdict is in.
BTW I included this for completeness and to overcome any bias I have in its favor 
In my limited personal experience, microloans have worked VERY well. True my experience is limited (I won’t count Kiva even thouh that has been positive too!), but locally the loans served their purpose (the borrowers had no access to credit) and the borrowers have made every payment to date.
So, I guess more research is needed to determine what about microfinance works (or under what conditions), and when it does not.
PS read the comments on this one.
Tags: a-committee-representing, a-new-business, a-time-period, bondholders, business, businesses, buy-more, conclusion, experience, investment, loans, not-opposing, percent-stake, plus-warrants, poverty-action
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