Europe must focus on growth as well as cutting spending to reduce national deficits, US Treasury Secretary Timothy Geithner has told the BBC
Who would have thought of that?!
Archive for the ‘Econ’ Category
What an insightful advice!
Friday, June 25th, 2010Talk about a selection bias II
Thursday, May 27th, 2010Bulgarian phone muber 888 888 888 is suspended, because every user assigned to it dies. In other words, the Bulgarian phone company thinks that the number is cursed.
What they have forgotten about is that correlation does not imply causality:
Why were the owners of the number dying then? Owner of such a phone number is likely to be a rich businessman, politician, or most likely of all (especially in Bulgaria) a mafia boss. Mafia bosses do tend to die prematurely because of the nature of their business (think of Santino Corleone), rather than because they have a nice phone number. So what makes people die, is not the number, but the occupation associated with it…
Innovations in the communist economies
Monday, May 24th, 2010I have participated in a debate on innovations in capitalist versus communist economies. All I had to say about it is summarize in this picture:
Talk about a selection bias…
Friday, May 21st, 2010The elections are due next week in The Czech Republic. Election polls, which are supposed to give unbiased estimates of voting intentions, give the center-right parties about half of the seats in the parliament, and the left wingers the other half.
What strikes me is that online poll at idnes.cz, widely popular centrist online newspaper, gave 100 percent of the seats in parliament to the right wing parties, that is all left wing parties fell short of the 5 percent threshold, which is required to enter the parliament.
I did not think an average internet user is so UNREPRESENTATIVE of an average citizen…
p.s. Of course the wealthier (more developed) a country is, the less different an average citizen and an average internet user is.
New Economist Debate – Is fair trade more important than free trade?
Tuesday, May 4th, 2010The Economist has started a new debate earlier today. The importance of the freeness vs. fairness of the world trading system is to be discussed. Bhagwati is against the motion, arguing that free trade is more important than fair trade.
Clearly free trade is more important than fair trade. Fair trading system with no free trade (complete protectionism) is clearly inferior to free, but unfair trade.
On the other hand, fairness and freeness of the trading system are complementary. Given the present situation, of relatively free but not so fair world trade, making it fairer would make more sense than making it freer.
So I disagree with the motion that fair trade more important than free trade, but agree that making trade fairer is more important than making it freer.
The Biggest Mistake Investors Make
Friday, April 16th, 2010“Advice is the only commodity on the market where the supply always exceeds the demand.” - Unknown
This is particularly true about Investment Advice. Not only there is too much of it, but 99 pct. of it is pure garbage (see my previous post on disinformation). The best advice an individual investor can ever get is never to follow the advice of ”investment gurus”, self-proclaimed analysts, and other noise traders…
Soros warns about Eurozone break-up
Tuesday, April 13th, 2010Soros warned in a recent FT interview that the Eurozone will likely break up if the EU won’t bail-out Greece.
Is it really so? I doubt it…
I just think Mr. Soros holds a lot of Greek debt (making a nice profit on the high spreads) and is using his political clout to make sure that Greece is not going to default on that debt…
Shame on you George…
(non-existent) Hedge Fund Conspiracy
Monday, March 29th, 2010
I should make it clear from the beginning; I’m convinced that there is NO such a thing as a “hedge fund conspiracy”, I just wanted to come up with a catchy title, but if there were one (even though there is no) the online newspaper I want to write about would be on their payroll.
Arbitrage funds are making financial markets efficient. They are driving the price of stocks to its fundamental value, by selling (shorting) when noise traders (uninformed traders, or idiots as Krugman puts it) drive the price too high, and buying when noise traders panic and drive the price too low.
This is a very simple (=great) idea that was slightly complicated with the advert of behavioral economics, which proves that arbitrage is risky. If the noise traders goo too crazy it might be rational for an arbitrager to stay out of the market, because he doesn’t know whether the noise traders won’t go completely nuts driving the prices extremely low and making poor arbitrager loose money in the short run.
If we forget about behavioral economics for a while, we can clearly see that the more mistakes noise traders (usually individual investors) make, the more arbitrage opportunities arise and the more money will the arbitrage funds earn. In such a setting it would be optimal for arbitrage funds to spread false information. Issuing a warning that stock XY is overvalued (when it’s not), would cause the price of XY to plunge, the fund could buy it, wait till the price recovers, sell and pocket the difference. So it’s all about false information.
After reading this assesment of the economic situation of Europe, I feel that the MSN Investing page spreads exactly this kind of an information. THESE PEOPLE HAVE NO CLUE WHAT THEY ARE TALKING ABOUT and still individual investors in the US read it and presumably believe it. You can be a genius but how can you make reasonable investment decisions when the “finance gurus” feed you this BS? Noise trader needs not to be an idiot as Krugman says, he might only be misinformed or disinformed, which is sad given that we live in an informational age…
………………………………………………
To add a short note. If we realize that arbitrage is risky, it is actually in the best interest of the arbitrage funds to let everyone know that there is a mispricing, after they identify the mispricing at elast. After they identify it and buy (or short) the stock, they need other actors (even former noise traders) to help them “fight” the crazed noise traders who believe the stock is too expensive (or too cheap).
Where do the best stock analysts work?
Sunday, March 21st, 2010At Citigroup and Lehman Brothers, or it seemed that way to Forbes in 2005! For me, this chart only confirms that the bankers, analysts, and others with MBAs had no clue what kind of financial mess is coming (not like anyone else did). I just think that the crisis was no conspiracy of the Wall Street, as some would like us to believe, but simply a bad luck… (That’s my a bit unconventional interpretation of the table)
We are all pro-regulation now
Saturday, March 20th, 2010
I went to a United Nations Book Launch Event, where the former governor of the Reserve Bank of India Y.V.Reddy was introducing his new book on the financial crisis: INDIA AND THE GLOBAL FINANCIAL CRISIS, MANAGING MONEY AND FINANCE.
What stroke me was the general enthusiasm for regulations. I had the feeling that people at the UN would regulate just about everything.
One of the panelists enthusiastically quoted Reddy saying that finance is here “..for the service of the economy.” How ridiculous is that? The sole mission of a private enterprise is to create value for the shareholders,period. By doing so, it serves the society ( or so I freely interpret Smith’s Wealth of Nations, the Invisible Hand part)
It seems to me that most of the debates, including this one, about the state of economy and what to do about it are about emotions rather than about facts. That’s sad…