The economics behind women’s tennis tournaments.

Eurozone’s dysfunctional internal markets.

Does the special relationship across the pond still exist?

How the German language evolved from the primordial Germanic soup.

Can the French economy be in better shape than the German’s?

Interesting short story from the perspective of a mail-order bride.

Nationalistic sentiments running high everywhere, including Japan.

businessweek.com- Many Greeks view the state with a combination of a sense of entitlement, mistrust, and dislike similar to that of teenagers vis-à-vis their parents. …

US Federal Reserve- “It is not the wolf at the door but the termites in the walls that require attention. The sooner the house’s structure is strengthened, the better.” …

FT- It is time to recognise that Greece is not just suffering from a liquidity crisis; it is facing an insolvency crisis too. …

blogs.ft.com- The eurozone’s most vulnerable economies are getting little benefit from the euro’s fall because they are too inflexible and uncompetitive. …

standpointmag.co.uk- The least bad option would be for the German bloc to leave EMU. Germany’s banks might still have to be recapitalised, but it would be less costly than trying to “rescue” Greece. …

The Economist- Rich countries with their greying populations should be saving whereas younger, fast-growing developing countries should be borrowing heavily. But in fact it is the other way round. …

NY Times- Austrian banks slowly recover from a sharp economic downturn and tries to pay down a pile of private-sector debt. …

marketwatch.com- We’re still living in a fantasyland. Most people have no idea what’s really going on in the economy. …

WSJ- Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation. …

Newsweek- We may be reaching the limits of economics. The disconnect between theory and reality seems ominous. …

newyorker.com- Financial illiteracy isn’t new, but the consequences have become more severe, because people now have to take so much responsibility for their financial lives. …

cjr.org- Rolling Stone made a virtue of the fact that it is not wedded to the news cycle in order to produce journalism that helped drive it. …

seedmagazine.com- No animal spends more of its allotted time on earth fussing over sex than homo sapiens. …

Business
Sweet spot for China’s blue-collar revolution
english.caing.com- Recent spate of worker strikes at factories in China, what does it mean for the rest of the world?
iPhone economics and lower barriers to entry
O’Reilly Radar- The App Store created a marketplace that anyone with the appropriate skills can enter. Can it last?
Forget peak oil, peak lumber is coming
Minyanville- The mountain pine beetle is ravaging Canadian forests, leading a long-term bull market in lumber.
When anyone can be a published author
salon.com- Will readers have to flounder in an ocean of slush before the new gatekeepers appear to rescue them?

Finance & Economics
Public sees a future full of promise and peril
pewresearch.org- In the public’s view, the next 40 years promises to be an era of technological progress.
Trichet explains why Soros is wrong about the Euro
cnbc.com- Reforming the real economy in each country in the euro zone is what is needed, according to Trichet.
Sterling is the star
Credit Write Downs- The budget credibility, the lower gilt issuance and reduced risk of a downgrade is helped sterling recover.
Europe: Adrift amid the rift
FT- Economic and financial crisis in the eurozone has exposed deep and long-standing divisions between the two largest European economies.
Fed watch: China, day one
Economists’ View- While China appears willing to adjust the parity rate, changes are likely to be more window dressing than anything else.

The rest
Personality shows up in brain structure
pagingdrgupta.blogs.cnn.com- Personality differences are now being explored biologically in the brain.
Words of the future
thenational.ae- As ebooks increase in popularity, typesetters are working hard to design the ideal fonts for on-screen reading.
Working on a (temp) dream
inthesetimes.com- Welcome to the freelance economy, where workers are atomized, badly compensated and strangely optimistic.
Beating China, India turns world’s top spam source
hindustantimes.com- The top country where spam servers are located is India, accounting for 16.9%, Brazil 8.7%.

Business
China needs a service-sector revolution
project-syndicate.org- Employing workers in sectors where their productivity is stagnant would not be a recipe for social stability. …
Environmentalists as battered spouses
american.com- Greens keep returning to their abuser after another promise to do good, but nothing in President Obama’s oil spill speech should offer them any hope that the administration is really going to change. …
Flight of the desktops
slate.com- The shift to portable machines fits larger social trends. More Laptops, netbooks, and tablets fit into the new lifestyle. Desktop don’t. …
Pleated pants watch: Don’t you want to be “clean”?
slate.com- Marketing men’s fashion is tricky because, for the majority of male clothes-wearers, the goal is to convince them that it is not fashion. …
BOOM: Big issues
gq.com- Lost in the catastrophic aftermath of the Gulf of Mexico oil spill is the gripping tale of the rig workers and the Coast Guard crewmen who rescued them. …

Finance & Economics
Germany’s super competitiveness
VoxEU.org- German wage restraint has led to a real depreciation of Germany’s fixed nominal exchange rate vis-à-vis its Eurozone members, helping Germany to win market shares at the expense of Southern Europe. …
On the lessons to be learned from the elimination of the Canadian federal deficit in the 1990s
worthwhile.typepad.com- If you’re going to count on exports to sustain aggregate demand while your government cuts back, you have to figure out which foreign economy is supposed to absorb all that extra production. …
Why it’s different this time for housing
online.barrons.com- For the economy as a whole, and housing in particular, restraint in borrowing will keep housing well below past cycles, no matter the level of interest rates or house prices. …
Gartman: Gold is good but Euro is doomed
Credit Write Downs- With the euro crisis and European credit easing, people have awoken to the fact that the euro is also a fiat currency and that the Europeans may be willing to depreciate the value of their currency as well. …
On your Marx
nplusonemag.com- It would add a nice dialectical twist to the future history of our period if it could be said that, around the time the post-Maoist Chinese took up shopping, the post-bubble Americans turned to studying Marx. …
Alan Greenspan v. Paul Krugman
Capital Gains and Games- The fiscal debate has become so polarized that combatants on both sides are glossing over what they don’t know. …

The rest
The breeders’ cup
WSJ- As you weigh your options, don’t forget that the costs of kids are front-loaded, and the benefits are back-loaded. …
The best vacation ever
Boston.com- Research looking at how people actually feel about their vacations suggests that, by and large, they remember them warmly — more warmly, in fact, than they feel while taking them. …
Tea and coffee ‘protect against heart disease’
news.bbc.co.uk- Drinking several cups of tea or coffee a day appears to protect against heart disease, a 13-year-long study from the Netherlands has found. …
Healthy at any age
services.newsweek.com- Medical science has generated vast amounts of data, and laypeople have more access to them than ever before, but look closely at that information, and it starts to seem disturbingly incomplete. …

WORRIES OVER EUROZONE
The eurozone’s tragic small-country mindset
FT- You can take the Portuguese or Belgian prime ministers out of their small open economies, but you can’t take the small open economy mindset out of these men. …
Questioning Keynes
CNN Money- Too often, forecasts have been wrong. Which makes Keynesian economics harder to follow in today’s modern economy. …
The case against the euro
bbc.co.uk- Growth will be at best anaemic. Unemployment will remain high. The potential legacy of having joined the euro is hard times for a generation. …
It’s not hard to understand why Asia’s worried about Europe
angrybearblog.com- Recent external shocks from Europe will likely show up Chinese and Philippine trade data in coming months. Doesn’t look good for Asia, especially for those economies like the Philippines and China for which exports provide a robust growth impetus. …

BUSINESS
Message in a bottle
time.com- The Nike outfits worn by the U.S. team as well as Brazil’s are made solely out of bottles, more specifically, bottles from landfills in Japan and Taiwan. …
“for the lolz”: 4chan is hacking the attention economy
zephoria.org- While the security hackers were attacking the security economy at the center of power and authority in the pre-web days, these attention hackers are highlighting how manipulatable information flows are. …
Think gas is too pricey? Think again.
Washington Post- The question isn’t just what a gallon of gas costs. It’s what a gallon of anything that can replace gas costs. Maybe that’s what we should start asking politicians. …

FINANCE & ECONOMICS
Does Japan really have a public debt problem?
blogs.ft.com- Countries with their own central banks do not need to default; they can inflate, instead. Provided they can borrow at long enough maturities and on favourable terms, the amount of inflation needed to eliminate huge debt overhangs is not enormous, provided it is unexpected. …
Open. The. Gates.
modeledbehavior.com- What immigration can potentially do for American military spending, Social Security expenditures, medical care costs, and technological growth. …
Is a college degree still worth it?
latimes.com- Increasingly, the job market has become polarized, with the fastest-growing occupations on either the low end or the high end, often for positions that require more education than a bachelor’s degree. …
Does this mean we never leave?
nakedcapitalism.com- The New York Times reports on a monster find of minerals in Afghanistan, some of them strategic. …

THE REST
You might be population too
meteuphoric.wordpress.com- Apparently it’s crazy to want our species extinct, but crazy not to want it arbitrarily smaller. …
Boldly going nowhere: Nasa ends plan to put man back on moon
The Times- Nasa has begun to wind down construction of the rockets and spacecraft that were to have taken astronauts back to the Moon, effectively dismantling the US human spaceflight programme despite a congressional ban on its doing so. …
Are you what you eat?
VoxEU.org- While people with an unhealthy lifestyle are no more risk-loving than other people, they are more impatient. …

POLITICIANS ON ECONOMICS
Europe must focus on what works
FT- Chris Patten weighs in on the future of knowledge economy, security policy and enlargement in Europe. …
Euro exit is ludicrous idea for any country: Hannes Androsch
preview.bloomberg.com- We must be prepared to bite the bullet with regard to pensions and social services, something our governments have shown little appetite for to date, says Austria’s former finance minister. …
Vladimir Putin, transaction cost economist
streetwiseprofessor.com- Putin is advocating a system in which the state plays an important role in setting and administering prices, and governing contractual relationships between big firms. Coolidge once said “the business of America is business.”  In this case, the politics of Russia is business. …

BUSINESS
Consumer adverts for pharmaceuticals: Impact on prices and sales
Voxeu- As a result of changes in regulation in the late 1990s, spending on direct-to-consumer advertising of pharmaceutical drugs in the US leapt from $150 million in 1993 to $4.24 billion in 2005. …
Digital self-publishing shakes up traditional book industry
WSJ- Much as blogs have bitten into the news business and YouTube has challenged television, digital self-publishing is creating a powerful new niche in books that’s threatening the traditional industry. …
How much the average American spends on entertainment
visualeconomics.com- On average, Americans devotes 5.6% of their budgets to entertainment. The biggest chunk? Audio and visual equipment and services. …
The counter-revolution of development economics: Hayek vs. Duflo
aidwatchers.com- Experimentation, for Hayek as well as Duflo, is the chief instrument of social change. Making experimentation work for development requires institutional feedback mechanisms which can fit together newly-discovered ways of doing things in mutually reinforcing ways. …

FINANCE & ECONOMICS
At the heart of the crash
nybooks.com- The current finance reform legislation before Congress may well turn out to be tame. The provisions passed will probably provide for only a minor breakup of the banks, and doesn’t adequately address the conflicts of interest and market-rigging that have discredited the ratings agencies. …
The anglosphere and high-income concentration
worthwhile.typepad.com- Research shows strikingly similar patterns in high-end income concentration in five English-speaking countries. One story that suggests itself immediately is that of the ‘brain drain’. …
The future of America’s working class
newgeography.com- The potential yobization of the American working class represents far more than a political issue. It threatens the very essence of what has made the U.S. unique and different from its mother country. …
Should we retire later
crookedtimber.org- Leaving the pension age unchanged when life expectancy changes pushes people to work harder since their required savings increase. So, it makes sense for public policy to encourage later retirement, and discourage ultra-long working hours. …

THE REST
Explaining fertility trends in Russia
Voxeu- In Russia, more educated women are also more likely to have children. …
Dead in the water: A floating cemetery for Hong Kong
fastcompany.com- Instead of tossing ashes into the great blue yonder, burial at sea in Hong Kong means an urn stored on a floating columbarium moored to the main land. …
Free heroin gives good results
politiken.dk- Actually maybe not. Providing free heroin to addicts in Denmark means better health and less crime for the addicts, but there’s little chance of any of them getting off of it anytime soon. …
Why controlling bosses have unproductive employees
blogs.hbr.org- If your employees consider you a controlling person, even an unconscious thought of you can have a negative effect on their performance. …

Escaping the mediocrity, sometimes unfathomable bureaucracy, and a general lack of opportunities in their home countries, many European economists have stayed in the US after pursuing a degree.

This is not exactly shocking news.  But it reminds me of my own.  So allow me to indulge for a minute.

While in university, some of my friends went on exchange, and many to Europe.  While getting B-ish grades in our own universities, many came back with A+ from schools in Europe while maintaining a party schedule the rest of us could only dream of.

Not too long ago, I myself spent some time at a European university for a master’s degree.  Now watching my boyfriend also pursuing a master’s degree from the same reputable university, I can say from first-hand experience: There-Are-No-Standards.

First off, many universities in Europe have no entrance cut-offs.  That means, with the right preceding degree – which was also given to students that studied with no real entrance requirements, you are stuck in a classroom with the lowest dominator.  Having a “tolerant” education system also means assignments can be handed in late, exams can be taken and re-taken, an atmosphere of genuine lacklustre-ness prevails.

Adding to the lack of uninspired classroom interactions, the hierarchical structure on the other end of the podium is also unfathomable. Unlike the tenured and untenured tracks in the North American system, complete with resident RAs that mark assignments and hold the occasional seminars, the entire supporting arm of this higher education branch is missing!

Contrasting my lonely graduate student life with those that pursued their graduate careers in Canada – with their own office space, more-or-less guaranteed research assistant positions, access to professors and conferences, and a structured graduate-student social life, my deal was truly crap.

So I buy the story when it says:

Many of the Europeans first came to the U.S. as graduate students, frustrated by the limited options offered by European universities. … Getting a doctorate in her native Belgium was unappealing, … because students were left on their own, with little academic support or oversight; many Ph.D. candidates she knew became discouraged after a few years and gave up. In the U.S., by contrast, the university was geared toward the student. Professors were approachable; research facilities, including libraries, were first-rate; and financial and other assistance was readily available.

I also buy the argument that subjects such as economics, treated as a scientific pursuit in North America, is still subject to political and philosophical whims when presented in Europe.  I once sat in an advanced political economy class, where mercantilism was offered as a viable alternative to the current global economic system.

Obsolete and disproved Marxist and socialist thinking also remained strong within European universities, including in economics departments. Many young economists, scientifically oriented and so recognizing the superiority of free markets, found the climate intellectually stultifying. It remains the case that most French and Italian universities teach economics as a philosophical subject—with opinions mattering as much as facts—not a scientific subject. A Keynesian, statist perspective still dominates most European curricula: free-market professors are an embattled minority.

I can’t help but think that much of what goes on in those supposed intellectual hot-beds called universities, particularly in Europe, because of its relatively low level of diversity when it comes to political ideologies and economic preferences, tend to be self-selective.  Therefore, the Keynesians and statist school will always dominate, no matter the timing.  And those that want alternatives have no choices but to leave.

Don Coxe is an investment strategist. But unlike most investment strategists that flaunt degrees in mathematics or quantum physics, Coxe is a curious historian. At 73, his curiosity has yet to wane, and his quarterly newsletter Basic Points has followed him from his old employer BMO to his new investment advisory business.

He makes investment a fun pursuit, not only of numbers, but of knowledge. In his own word, he studies history to “compare popular views about economics, finance, geopolitics with evidence of what has happened in various eras.” And making money is merely a financially rewarding byproduct of that pursuit.

In his March edition of Basic Points, Coxe drew my attention to a few points rarely discussed by investment advisors and analysts in the mainstream. Let’s see what they are.

Lack of sunspot activities and possible crop failures

Most of us are aware that the earth has been warming up in the last couple of centuries. The rise of environmentalism makes sure of that, and Gore’s Inconvenient Truth enforces that belief. As humans, we are no doubt responsible for the unprecedented level of pollution and degradation to our natural habitats. But the feverish pitch of the environmentalists has become dogmatic in recent years, and any dissent over either methodology or the validity of data that supports their belief is deemed treasonous.

As much as environmental awareness is a more than commendable cause, the sensationalism and the selectivity over the type of news and data that make it to the front page has been astounding. Bloopers are swept into the background, and wildly pessimistic and sensationalistic pieces inject more fear and exaggerated claims into mainstream conversations. We are all for a better living environment, but no end justifies the means if facts and truths are misrepresented in the process. The public will turn their backs on the cause, no matter how noble it may be.

But back to the issue on hand for now. With all of that hoopla, you would think that a cooling earth would bring a sigh of relief to the world. But no. According to climatologists, the patterns of the sunspots have been: ten years of sunspot activity, a year of rest, and then a new cycle. The last cycle ended in 2006, and there was little activity in 2007. The troubling thing is that they didn’t appear in 2008, or in 2009 so far. This means that we are experiencing the longest sunspot drought in more than two centuries. Scientists are expecting the sun to resume maximum activity anytime now. But then again, they have been holding their breath with little avail for the past year.

So what does this mean for investors? Coxe thinks if sunspot inactivity continues, we are headed for another year of crop failures and agricultural disaster. He suggests we “watch the websites that update the sunspot story. If the spots don’t return by mid-June, then there might well be great rallies in the grains. Buy the fertilizer, seed and farm equipment stocks.”

And as the unapologetic historian, he leaves us with a requisite tale.

Scotland suffered six straight crop failures during the 1690s because of late Springs and early frosts. Some historians believe this was the major reason why the Scots gave up their dreams of independence and joined England. There were skating parties on the Thames each winter. Polar ice caps expanded dramatically.

Cooling demographics

I have written before on the importance of demographics and the role it played in the ongoing US property bubble. Demographics also played a part in preventing the much anticipated Japanese economic recovery from taking place in the last decade, as well as stopping the Europeans short from writing a large stimulus check.

Don Coxe’s analysis further affirms my belief that many OECD countries face similar challenges to Japan in the coming years. In his opinion, rising standard of living and property prices took place on the back of a population boom. When this came to a sudden halt in the 70s, residential real estate is a reliable long-term asset class no more.

When the overwhelming majority of families in the OECD collectively and simultaneously chose to cease reproducing themselves in the early 1970s, and stuck to that resolution, they repealed the most basic of long-term investment concepts. Demographers and social scientists can debate the reasons behind this momentous behaviour shift – or even whether it is a good thing. We merely note the obvious, that financial prognosticators have no: people changed 35 years ago – apparently permanently – and the world changed – apparently permanently.

What began during the early 1970s was an OECD-wide collapse in the fertility rate from roughly 2.4-2.5 babies per female to 1.4 babies. Since 2.1 is required to maintain population levels, the three decades of fertility below 1.6 have, slowly but inexorably, transformed population profiles – and the housing markets.

He also goes on to spell out the corruption that went on at Fannie and Freddie that could not have existed without full backing and co-operation of the government, particularly the Democrats. Bottom line? Political leadership is as much to blame as the corporate fat cats they have been hanging out to dry the past year.

The government’s relentless pursuit of property ownership expansion ignored the basic supply and demand equation in the market place. None of the reckless lenders in the housing market noticed the reason for debasing lending criteria to expand the supply of qualified homebuyers was the dwindling number of qualified homebuyers.

While the Congress was busy enabling lenders to sign unaffordable mortgages over to poor Latinos and African-Americans, it heavy-handedly restricted the supply of working-visas and green cards to more productive, better-educated, willing and able receivers of properties. The result? The people that could have purchased and sustained a rising housing market were denied access, where those that could not afford to service the mortgages were burdened with incomprehensibly termed debts.

picture source: ~MichaelBills

Welcome Gen-X readers, and thank you for visiting my blog.  I write about investing, macro-economics, society, culture, career, and any other ideas and thoughts I have from my own experiences.  Some samples are available here.  If you enjoy my posts, then please consider subscribing to the RSS feed and spread the word, I would love to hear from you!

Here are some places to start that will give you a taste of this blog:

More on the Recession

• What are high profile economists saying about 2009? Hear from Roubini, Taleb, Faber, Rogers, Schiff, Coxe, and more.  Mirror mirror on the wall, who’s the gloomiest of them all?
• For Gen X and Ys, the recession presents a myriad of opportunities in housing and investment. They are there, you just gonna look for them, and be very optimistic.  Believe it or not, the recession has perks
• What the recession and the past can and can not teach us.  When the paradigm changes, one must re-adjust. So perhaps looking back on history is not a great thing. One way of dealing with a broken economy: Ignore history

On investment

• The market is far from inefficient, the sooner you accept this, the better you can sleep at night.  Believe this, and you’ll sleep better at night
• Whole-picture macro-trends driven investing is not easy, if you don’t believe the difficulties of it, just read this.  Or maybe not, because you might stop investing altogether. Are you seeing the whole picture when it comes to investing?
• Has the financial crisis changed fundamental rules of investing going forward? Read about why investors and consumers are the only ones that can push businesses into good behaviour. Old rules out, new rules in: What investors should demand going forward?

Some investment ideas

• The food crisis ruled the news last year, now it’s forgotten.  Will the food crisis come back, and when it does, are we prepared? And more importantly, can we benefit from this?  What the forgotten food crisis means for your investment
• The housing bubble took place with no demographic support, maybe that’s why we’re in this hole right now.  Love it or hate it, demographics matters for an investor (I)
• What demographics are telling investors to focus on in the future. Hint: needs will trump wants. Hint: where do most people in the world live and what do they absolutely need? Love it or hate it, demographics matters for an investor (II)

Some comic relief, cuz God knows we need every bit of laugh we can get

• Places that are doing worse than your average recession-ridden economies.  That is, unless you live in Iceland, Germany, Japan, or Ireland.  Then I’m truly sorry.  Who’s worse off than you?
• The curious case of Berlin and how it’s able to avoid the recession. I explain my findings of the city, along with pictures from 2008.  Who is too poor to afford a recession?
• Thoughts on European immigration and the welfare system, and a piece on Japan and its very broken society . Those are not as funny but hopefully you find some solace in other people’s equally unsolveable problems?  When pragmatism trumps ideology and Japan and its broken social contract.
  
• On my life in the land of cows and windmills, on baking my own birthday cake and endless air kisses.  The year of living Dutch

Do you like what you’ve read and want to keep up?  Please consider subscribing to the RSS feed and drop a line, I would love to hear from you!

picture source: jimmycohrssen

It’s been a month since the Investoralist officially kicked off, and I thought I’d briefly pause and write about what I’ve learned so far.  Granted, a month is barely a blip, and some of the musings may seem pretty amateur to bloggers that have been labouring in this medium for years.  But hey, this is the Internet, everyone gets their piece.  And there’s hardly anything that I can do to prevent you from clicking away.  So off I go.

The need to provide value. Before I enrolled in politics – that was my choice for graduate studies, I was interested in the Middle East.  To prove it, I went traveling in the region and ended up living in Egypt for three months.  I took Arabic classes. Then I went to grad school, and realized that everyone was interested in the Middle East, and everyone has seen the sufferings of the Palestinians, first-hand.  I then promptly decided that I was no longer interested in the Middle East, since whatever problems it may have had, it was not for a lack of concerned political science students.  And if all these smart, motivated, and outraged graduates of political science studies around the world have yet to find a solution to the problem – other than becoming bitter and indignant and depressed, I had little to offer.  At least not through the same path.  Or not at all.

So now I find myself blogging about investing, which is a subject that’s pretty vast and covered by a lot of people.  The same issues are frequently debated up and down the journalistic and blogsophere chain.  Some opinions are fruits born from careful examinations of arguments and data, some agenda-driven, some are pure drivel and derivatives.  The issue of adding value to the discussion is never far from my mind when I write.

The need to be interesting. I’m not sure if the importance of being interesting should take a back-seat to providing value.  God knows that we are subjected to enough dull and dreary readings.  I can barely work up the will to look at my tax re-assessment from 2007 and call the government to see why they are demanding $64.36.

The issue with investment and perhaps any kind of personal finance writing is that the subject itself is not something most people naturally gravitate towards.  It’s not escapist, because reading about something that tells you how to sort out your money is usually pretty serious stuff, and you need to pay attention.  Not like reading snarky news on some dumb celebrity’s impending divorce or rehab mishaps when you are waiting for your dentist appointment or sitting in the salon chair. Because at the end of those, you roll your eyes, shake your head, slap the stuff down and get on with your life, feeling just that slightly happier and relived.  But what you read on personal finance probably just makes you more jittery and agitated.  Most writers on those subject are out to teach you something that you are doing wrong.  And there’s always a call to action at the end that more often than not leaves you feeling guilty, because you know you should do it, or at least look into it.  But that to-do list just gets longer.

Investing and managing your finances is also not sexy. I’m not sure if there is anything instinctual about the subject that pulls one in, compared to say, gossip or productivity and inspirational writing.  Let’s face it, the subject itself does not have broad appeal.  But we deal with it out of necessity, and competitiveness.  Or perhaps greed.  That could be a good motivating factor.  Except most advice served in this subject tend to be conservative and very sensible.  Too sensible to rouse that Donald Trump I-will-make-you-rich-if-only intensity.  Personal finance bloggers are a prudent bunch, dishing out advice from frugal living to high-yield saving accounts, to carefully monitoring the market and discussing amongst themselves whether there is potential for an upturn.  It does not promise a quantum jump in the quality of your life in one sweeping gesture of dramatic change.

So what makes, interesting?

Writing what I want to write. I had no idea what the personal finance blog landscape was like a month ago. I had no idea what other people wrote, and I had no idea what people liked to read.  A few days into writing, I figured it was a good idea to find out.  I did, and now I know.

So now I can write with the peace of mind that everyone does it their own way.  Sure, there are plenty of people out there talking about SEO, writing catchy titles, baiting existing bloggers, stirring up controversy.  I’ve seen what HuffPo resorts to in order to get more pageviews, I don’t think I can do that.  At least not before moneymaking become a concern and Google AdSense goes up.  But for now, I really just want to focus on what I want to write.

I know what I cannot write.  I am not fit to give out frugality tips, nor tell someone how to organize their bank accounts when I can’t do the same, nor graph my way to stock-picking stardom.  So I will write what I find interesting – the market, and how it absorbs ebbs and flows of political and economic decisions of past and present, how it translates and amplifies our various rational and irrational expectations of the present and future.  It is as close to an oracle as it can be: it reflects the fundamental health of the economy, but it also deceptive in its momentary indulgence of collective greed or fear.  In good times, it’s mellow and eternally optimistic. But in times like now, it is a wild beast unleashed.

To me, that is dynamism worth learning and writing about.  Because learning about the market is akin to learning about the world.  For there is not one force that dominates, but an intersection of competing and antagonistic ideas that battle against each other on a daily basis.  In that sense, the topics that I can bring up in an investment-focused blog is endless.

Write less and talk more. It’s no fun talking to myself.  It’s even less fun talking to myself in verbose and stuffy sentences.  This is an unfortunate side-effect of spending time in graduate school writing essays that nobody reads.  I will work on simpler delivery.

I left graduate school last year.  There were various reasons.  But one that bothered me the most was the tendency for everyone to talk past each other.  And everybody talked too much, the least of all me.  The thing with school is that you pay to voice your opinions, and nobody can shut you up and say, “Hey, that was completely ridiculous and irrelevant and please just shut it because we can’t take it anymore.”  It’s the same idea as saying “There are no stupid questions.”  Actually, there are, lots of them.

So what ultimately happens is that everyone sits around for hours on end, pontificating on theories developed by long-dead Europeans that would probably turn in their graves if they so much as overhear some of our self-involved interpretations of their life’s work.  It gradually dawned on me, on how the whole field of social science is like setting up the scene to accommodate breakthroughs, not unlike waiting for the Second Coming.  The rest of the time, people mull around to recycle, re-test, quote and mis-quote, agree or disagree with mountains of academic journals before them.  To me, there just wasn’t enough value generated to justify the huge expense in time.

Back to blogging.  I hear time and again that community and dialogue is the most important aspect of blogging.  I am looking forward to that.  There is no shortage of good discussion in the blogosphere, and I’m as eager as the next blogger for some heated and engaging conversations.  I also like to be disagreed with.  So bring it on!

picture source: *eduardovieira

Thank you to Penny Daily for including us in its Carnival of Investing Strategies #5.

What makes a successful long-term investor? Is it an exceptional understanding of the market? Is it a Blackberry full of Wall Street contacts that tip you on every insiders’ move? Is it a PhD in quantum-physics or mathematics?

No. Because if that was the case, then most investment funds with their well-paid, well-educated, and well-connected managers would not be walking around with their portfolios 50% lighter.

So what is it about the market that suckers in so many people? How is it that some investors are ruthlessly spit out, and others remain relatively unscathed in the long-run?

Knowledge.

But not just business knowledge. What has been taught in business school and other rudimentary business classes do little to improve one’s chances when it comes to investing. Why? Because the knowledge presented in those accounting and finance classes only give you a myopic look at the whole picture.

For example, say you are an accounting maven but know nothing of what’s going on in the mortgage market in 2006. You look at the balance sheet of banks, match up the debit and credit sides, check off the triple-A rated loans, and marvel at how the bank has managed to grow so quickly in the last few years. But any economists looking at the picture would be alarmed at the rate of growth, probe deeper into the loan ratings, gasp at the poor judgment exercised on part of the bankers, and issue a warning. Someone who is schooled in politics would take a hard look at the political contributions made to head of committees that signed off on the predatory lending policies and yell foul! And any Tom, Dick, and Harry, who’s been canvassed by sketchy pseudo-lending institutions would tell you that if it walks like a scam, and quacks like a scam, it is a scam.

So there, it only takes someone who is in touch with reality to smell the foul. If confined to an academic or industry-conformed bubble, it will take someone who is willing to see the whole picture and dare to ask questions to reach the same, sane conclusion.

Here’s another more direct investing example, taken real-time off the happenings of the current market bloodbath.

When the market started going off the deep end beginning of the year, many respectable economists and analysts called for a sharp decline in the US dollar.

Not that the dollar didn’t deserve it. The stock market was abysmal, debts were piling up, inflation was fuelled by the astronomical rise in crude prices, and the gold bugs went nuts.

But the dollar didn’t fall, at least, not in 2008. Contrary to what many expected, the greenback went from strength to strength against the pound, the euro, the Aussie and Canadian dollars. How could they have been wrong? Their analysis made so much sense.

Myopia was to blame, again. Two things worth noting, both should drive you to pick up the paper and read the World section and brush on financial history.

First of all, many experts failed to survey the whole picture while predicting the greenback doom. Instead of examining the economic health of other currencies relative to the US, they either ignored or failed to consider the effect of a US belly flop. It turned out that part of the Eurozone had just as much of a real-estate fuelled credit bubble as the US. Many had even more dire loans made out to emerging markets that were unlikely to be recovered in the near future. Ouch!

Remember the fuzz raised when upscale retailers in the New York area accepted euros in fear that the dollar would become worthless, and everyone rushed out to open their euro accounts? Nowadays, the very survival of this currency is debated. The market is fast, furious, and seems to retain no medium to long-term memories. Who else but you can add all these episodes to your experience notebook and defend your money against market schizophrenia?

Secondly, nobody seemed to remember the experience of LTCM. I watched a PBS documentary on the failure of LTCM in first year statistics class, and later went on to read “When Genius Failed”. On a curious note, this book was on the curriculum for the CFA Level III exams back in the days.  Not sure what the case is now, but considering most buy-side investment advisory would require their analysts to hold such designation, did nobody remember the lessons from mass de-leveraging?

It turned out that in September and October, when panicking investors started withdrawing their capital en-masse form the market, many investment funds were forced to liquidate their holdings regardless of performance. This exodus of cash resulted in two things. One, an enormous demand for the US dollars rose as people liquidated out of their holding currency to settle accounts. Two, mass withdraw resulted in a capital exodus (i.e. forced liquidation) from the well-performing commodities group. This, combined with a reduction in demand for certain raw materials, contributed to the weaknesses in the currencies of commodity producing countries, namely, Russia, Canada, and Australia. The weakening of many previously perky economies, whether its due to a fundamentally weak economy and credit system, or the reduction in commodity revenues, further drove jittery investors to the relative “safety” of the dollar.

I didn’t see this coming, of course. But unfortunately, nor did many of the economists or analysts whose job it was to pay attention to these events and extrapolate these scenarios. A truly brilliant analyst, like a good historian, should be a good storyteller. They should be able to navigate through the muddy terrain that is the ecosystem of the market, and find a stable tree to build their theory from. From this tree, they should be able to split off the branches, testing assumptions and viability of their stories. They should anticipate thunderstorms, tornadoes, snow in July and the odd Indian summers. They should consider the vast ecosystem of where the tree is planted, consider the various interactions the tree would have with the other inhabitants in the woods.

Because staring at that one branch and self-congratulating on the infallibility of one possible scenario will in no way help you see the bigger picture. It’s only by recognizing the existence of the bigger picture, and acknowledging and anticipating the inter-connectedness of the wider business ecosystem, that any of the business education can be put into use.

picture source: boojamon

On an ABC interview aired February 10^th, President Obama acknowledges that America has a thing or two to learn from two previous sufferers of financial crisis brought on by housing bubbles.

TERRY MORAN: There are a lot of economists who look at these banks and they say all that garbage that’s in them renders them essentially insolvent. Why not just nationalize the banks?

PRESIDENT OBAMA: Well, you know, it’s interesting. There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what’s called “The Lost Decade.” They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn’t see any growth whatsoever.

Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you’d think looking at it, Sweden looks like a good model. Here’s the problem; Sweden had like five banks. [LAUGHS] We’ve got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would — our assessment was that it wouldn’t make sense. And we also have different traditions in this country.

Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America’s different. And we want to retain a strong sense of that private capital fulfilling the core — core investment needs of this country.

And so, what we’ve tried to do is to apply some of the tough love that’s going to be necessary, but do it in a way that’s also recognizing we’ve got big private capital markets and ultimately that’s going to be the key to getting credit flowing again.

Oh, Mr. President, it’s comforting to know that even in times of economic crisis, you find time to piss on miniature economies over in Europe that tried to upstage us in creating economic upheavals.  That strategically placed laugh in there?  Amazingness.

I mean, Sweden had, like, five banks? That’s, like, so inconsequential, that’s like, child play. And America has, like, thousands?  You wanna see a crisis driven by speculation and greed, you want to see real suffering, you want to see the real economic apocalypse?  This is how it’s done!  Five-banks Sweden?  Get off the friggin podium.

Your wicked sense of humour did not stop there.  You really put those European socialists in their place by rejecting the semantics of nationalization.  Those guys other side of the Atlantic all but gave it up on the idea of the open market hundreds of years ago, but over here, we are the last defenders of capitalism.

That means, sink or swim, you’re on your own.  Well, except for the auto bailout.  Market economy driven by trade and globalization?  Except for the “buy American” rhetorics.

So instead of succumbing to pressures from the so-called experts to adopt this nationalization model, there is no letting go of principles here.

Because what are we if we cannot believe in the power of the “big private capital markets” that got us into this shit in the first place?  What are we if we do not do everything in our power to “ensure credit flows again”, even if the bank rescue plan makes grown economists cry and the stock market go sideways?

Secondly, even though it should come as no surprise from a brilliant mind like yours,  I was taken aback by the shrewed deployment of logic here.  You have clearly demonstrated an astute understanding of cultures and how they influence the macro management of our economies.

Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America’s different.

I’m no cultural anthropologist like you, sir.  So in order to understand the obviousness of your statement above, I humbly went off to google the Swedish culture and any potential relations to the way they govern.

And what an education that was!  Just look at this “You know you are Swedish when” list!

You end your phone calls with ‘pusspuss’ and then don’t understand at all why the English-speaking people around you looks at you like you’re a retard or a pervert.

You eat minimum ten buns with almond paste and whipped cream on “Fettisdagen” and claim that it just doesn’t taste right if the lid isn’t triangular.

You celebrate Easter and Christmas one day before most other countries do and have at more than one occasion utterly failed in explaining to Non-Swedes why this is the case.

You dress up like a “stjärngosse” and don’t get why Non-Swedes think you are from the KKK and a black guy gets mad.

Living with your partner and having kids together without even planning on getting married is perfectly normal.

So there you have it, ladies and gents, as a dignified, health-conscious, God-fearing black man, it’s no wonder that the Prez shut the Swedes down.  They are a bunch of racist perverts that suffer alternately from schizophrenia and OCD.  Their glutinous and God-defying lifestyle has (obviously!) successfully destroyed institution of marriage in their corner of the woods.

So thank you, Mr President, for preventing the Swedes from encroaching on our sacred ways of lives in America .

source: ~DjBisparrulz

There’s a been a lot of talk of the Swedish bail-out models by the economic big-wigs lately.  Here are some facts to get you up to snuff.

What brought it on?

In the early 90s, Sweden suffered from an economic crunch brought on by the property bubble.  From 91 to 93, the economy went into the reverse gear.

According to the Swedish central bank, “a tidal wave of bankruptcies” between 1990 and 1994 left Sweden’s seven largest banks, which accounted for 90 percent of the market, with loan losses totaling the equivalent of 12 percent of Sweden’s annual gross domestic product.

The Swedish bailout

Sweden set up an agency to recapitalize the banks.  Contrary to what the US is proposing – taking over the bad debts of the near-insolvent banks, the Swedish government became owners of those banks in exchange for help.

Step 1:

Provide blanket guarantee on all bank liabilities.

Outcome: Restore depositor and creditor confidence, prevent run on banks that would’ve made restructuring impossible.

Step 2:

Parliament passes emergency legislation to take over and nationalize any bank on the verge of failing.

Outcome: Good enough banks would gain enough time and credibility from the blanket guarantee that no take-out/nationalization is needed.

The threat of government control scared most banks away from seeking bail-outs.  Most of the large institutions found ways to get through the problems without any government help.

For example, large Swedish banks such as SEB and Swedbank obtained new capital from private investors, and established their own bad banks with the help of outside investors.

Step 3:

Liquidity test on banks.  If the model indicates the bank  can become profitable again in the near term, then it is given support to survive.  If the model indicates the bank will never become profitable again, then it is closed or merged.

Outcome: Avoids the Japanese problem, where illiquid or semi-liquid banks were given a lifeline despite its profit outlook.

Step 4:

Nationalize insolvent banks once they write down their losses.

Outcome: In the end, Sweden only had to nationalize two – Nordbanken and Gota Bank, that were on the verge of failure.

Step 5:

Set up a bad bank for each new nationalized bank to dispose of bad loans.

Outcome: Removing bad assets allows management team to resume its rightful role as a lender.  A separate entity is better equipped to dispose of the loans or underlying collateral since it is its mandate to do so.

Furthermore, no more write-offs to undermine the morale and confidence of the banking sector.

Step 6:

Price assets of bad banks to reflect market value with help of outside consultants.

Outcome: Government gets accurate assessment on the amount put into the banks.  It then waits for market to rebound.   As an equity investor, it’s able to recoup its original investment plus potential gains.

The bad bank – Securum closed after only four years.  The Federal Reserve of Cleveland found (PDF)that more than half of taxpayers’ money had been recovered.

Economists and investors loves it, here’s why

Who loves this solution?  Count in Jim Rogers, Nouriel Roubini and Nassem Taleb.

1. The strategy held banks responsible for their actions, and turned the government into an equity owner.  When distressed assets were sold, the profits flowed to the tax payers, and the government could later recoup its investment by selling shares into the companies.

The extraction of bad assets from the bank meant that the investors would bleed and pay for their investments into the banks, but the taxpayers were not on the hook.

Market observers liked the Swedish model in steep contrast to what they see lacking in the current US rescue plan.

The US version provides the banks capital with “no strings attached” financing, whereas the Swedes took control of the struggling banks in exchange for aid.  This gives the investors an upside once the market picks up, and the assets become valuable again.

2. The measures were designed to minimize costs for the government and reduce the risk of moral hazard.

The stockholders were not covered by the plan, and lost their equity investments in order for the government to come in.  This crucial litmus test ensured that owners would not apply for state support unless absolutely necessary.

Instead of having the bond and stockholders bearing the cost of their failed investments, the US bailout plan has the taxpayers paying for assets which values are unclear.

picture source: ~maq4ka