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*Weekly Joke & Cartoon are removed this week out of solidarity to Earthquake Victims
Most Inspiring Story: Auto-appendectomy in the Antarctic – Via BMJ - After several weeks Rogozov fell ill. He noticed symptoms of weakness, malaise, nausea, and, later, pain in the upper part of his abdomen, which shifted to the right lower quadrant. His body temperature rose to 37.5°C.1 2 Rogozov wrote in his diary: “It seems that I have appendicitis. I am keeping quiet about it, even smiling. Why frighten my friends? Who could be of help? A polar explorer’s only encounter with medicine is likely to have been in a dentist’s chair.”
Most Important Article(s) Of The Week!!!!!!!
A Venture Capitalist Helps Haiti - Via Florida Venture Blog – Like many of you, I’ve been wondering how best to help the Haiti earthquake victims. The following list (thanks Bro!) makes it easy…
Nobody wants your old shoes: How not to help in Haiti – Via AidWatch – Donating stuff instead of money is a serious problem in emergency relief. Only the people on the ground know what’s actually necessary; those of us in the rest of the world can only guess. Some things, like summer clothes and expired medicines are going to be worthless in Haiti. Other stuff, like warm clothes and bottled water may be helpful to some people in some specific ways. Separating the useful from the useless takes manpower that can be doing more important work. It’s far better to give money so that organizations can buy the things they know they need.
Jeffery Sachs: How To Rebuild Haiti - Via Washington Post – To prevent a deepening spiral of death, the United States will have to do things differently than in the past. American relief and development institutions do not function properly, and to believe otherwise would be to condemn Haiti’s poor and dying to our own mythology.
ValueHuntr Report: Donate to Haiti and Become a Premium Member - Via ValueHuntr -In solidarity with those affected by the earthquake in Haiti, ValueHuntr.com will be providing a free premium membership, including a subscription to our monthly ValueFocus Newsletter, to readers who donate more than $30 to the ValueHuntr Haiti Relief Fund below. This offer expires Friday, January 22nd.
Miguel’s Weekly Favorites:
Where happiness lies – Via FT – That is Julian Baggini surveying a number of books on happiness: ranging from empirical to delusional to depressive. Interesting throughout.
Links on inequality and the macroeconomy- VIa Interfluidity – I am one of those people who thinks that extreme inequality is inconsistent with a healthy economy. I am not here claiming that extreme inequality is morally wrong or unjust (although it may be). I think that inequality is harmful under conventional macroeconomic criteria of sustainable GDP growth with moderate business cycles. Nick Rowe (whom I generally adore) is dead wrong when he writes, “Sure, there might be distribution effects, but distribution effects are the last refuge of a …. person who can’t think up a better argument.” Distributional questions are central to macroeconomics, and underemphasized for reasons that I think are ideological. A good economy must accommodate three coequal but contradictory concerns: incentives, distribution, and dynamism. Pick any two and what you end up with is crap.
“The Wayfinders: Why Ancient Wisdom Matters in the Modern World” - Via Long Now – The thousands of different cultures and languages on Earth have compellingly different answers to that question. “We are a wildly imaginative and creative species,” Davis declared, and then proved it with his accounts and photographs of humanity plumbing the soul of culture, of psyche, and of landscape.
Stop buying stocks and start buying businesses. - Via Nick Gogerty – Business values are tied to 2 things, a competitive dynamic and perceived value by the purchaser. Put these 2 pieces together and you end up with price. Please note this is a little more subtle than supply and demand and the framework varies with each market.
Paul Volcker’s Moskowitz Lecture - Via Rajiv Sethi – Back in 1978, Paul Volcker delivered the annual Charles C. Moscowitz memorial lecture at New York University’s College of Business and Public Administration. The lecture was published (along with the remarks of two discussants) under the title The Rediscovery of the Business Cycle. Ten years later the College had been renamed after Leonard Stern, and the book was out of print. When I looked for it about a month ago the Columbia library came up empty and I couldn’t find a single copy available for purchase online. I finally managed to get one on inter-library loan from NYU.
How to Cure 1 Billion People?–Defeat Neglected Tropical Diseases - Via Scientific American – The poorest people are not only poor. They are also chronically sick, making it harder for them to escape poverty. A new global initiative may break the vicious cycle
Joseph Stiglitz: Moral Bankruptcy – Why are we letting Wall Street off so easy? - Via Mother Jones – It is said that a near death experience forces one to reevaluate priorities and values. The global economy has just escaped a near-death experience. The crisis exposed the flaws in the prevailing economic model, but it also exposed flaws in our society. Much has been written about the foolishness of the risks that the financial sector undertook, the devastation that its institutions have brought to the economy, and the fiscal deficits that have resulted. Too little has been written about the underlying moral deficit that has been exposed—a deficit that is larger, and harder to correct.
Rational Irrationality: Interview with Raghuram Rajan – Via The New Yorker – I met Rajan in his office at the Booth School of Business. I began by asking him about the academic work he and several colleagues at the business school did in the years leading up to 2007 on banking and liquidity. In addition to exploring theoretical issues that turned out to be important, Rajan, in the summer of 2005, issued a prescient warning about the dangers of a financial blowup involving the credit markets. It was striking, I remarked, that despite Chicago’s image as a bastion of market efficiency, it was also home to much more questioning research in the financial system.
The Puzzling Inventory Growth Risk Premium - Via SSRN – In the cross-section of U.S. publicly traded firms, we document that the spread in expected returns between firms with high versus low inventory growth rates is as high as 7% per annum, after controlling for differences across the firm’s capital investment rate. We investigate the ability of existing macroeconomic models of inventory behavior to simultaneously match the cross-sectional properties of asset prices and real quantities in the data. Calibrated to match quantities as close to the data as possible, we find that none of the models considered here can quantitatively explain the observed large dispersion in risk associated with inventory growth. Adding convex adjustment costs in inventory investment slightly improves the ability of these models to match the asset pricing facts, but it deteriorates the fit along the quantity dimension. We conclude that the strong link between inventory growth and firms’ risk documented here is a quantitative puzzle for existing macroeconomic models of inventory behavior.
How to Bounce Back from Adversity - Via HBS – Things are humming along, and then: A top client calls and says, “We’re switching suppliers, starting next month. I’m afraid your company no longer figures into our plans.” Or three colleagues, all of whom joined the organization around the same time you did, are up for promotion—but you aren’t. Or your team loses another good person in a third round of layoffs; weak markets or no, you still need to make your numbers, but now you’ll have to rely heavily on two of the most uncooperative members of the group.
Why Nassim Taleb Walks – Via Fooled By Randomness
Testosterone and the Ultimatum Game - Via Freakonomics – The common wisdom on testosterone is that it contributes to risky and aggressive behavior, but new research reveals a different pattern. In a study, 121 women were dosed with testosterone or a placebo and then played the ultimatum bargaining game (see Chapter 3 of SuperFreakonomics for more than you ever wanted to know about Ultimatum). The results were counterintuitive: women given testosterone actually made higher initial offers in the bargaining game, resulting in less conflict and more efficient social interactions. The researchers attributed the results to “a desire of the testosterone group to maintain their images — by avoiding rejection — aligning with the so-called social status hypothesis.”
Mean reversion in earnings - Via Greenbackd – One of the most fascinating examples of the phenomenon of mean reversion was identified by Werner F.M. DeBondt and Richard H. Thaler in Further Evidence on Investor Overreaction and Stock Market Seasonality. DeBondt and Thaler examined the relative performance of quintiles of stocks on the NYSE and AMEX ranked according to book value. As an adjunct to the main study, one of the variables they analyzed was the relative earnings performance of stocks in the lowest and highest price-to-book quintiles.
Hidden Levers: A New website for portfolio sensitivity analysis - via HL – What is HiddenLevers?
What happens to your portfolio if interest rates rise to 10%? What about if oil prices spike up to $150 per barrel? Do know what impact health care reform could have on your portfolio? HiddenLevers can help you answer these questions and much more! HiddenLevers ties together how different economic factors (levers) affect investments, empowering investors to plan for different economic scenarios. You can use HiddenLevers to test your portfolio against different scenarios, to find stocks which will perform well in a particular scenario, or to research investments and learn what factors might affect them.
Close Encounters Of The Desired Kind: Study Reveals Wanted Objects Are Seen As Closer – Via Medical News- We assume that we see things as they really are. But according to a new report in Psychological Science, a journal of the Association for Psychological Science, if we really want something, that desire may influence how we view our surroundings.
Think like Buffett: Tips from a pro – Via Globe INvestor – Richard Rooney of Burgundy Asset Management took your questions on value investing
Exclusive Features : (The Must Reads)
Basel, Faulty? Containment, Not Cure – PsyFi Blog – The international banking regulations known as the Basel II Accord have come in for some stick, given the fallout from the banking crisis of 2008. This is, on the face of it, a bit unfair given that Basel II hasn’t yet been fully implemented in most countries and anyway was designed to try to head off some of the problems that have occurred.
How Mathematical Economists Overreach - Via Think Markets – In recent months there has been a discussion both in the traditional media and in the blogosphere about why orthodox macroeconomics failed to predict or explain the financial crisis and the subsequent Great Recession. Some of that discussion focused around Paul Krugman’s criticism that economics mistook (mathematical) beauty for truth. Subsequently, there was a further discussion about the role of mathematics in economics.
Wall Street Tries to Explain Itself Today - Via Good – The Financial Crisis Inquiry Commission gets to work today, interrogating CEOs, academics, and economists to find out why our financial system collapsed, how the bankers got so rich, and whether the two might be related. You can watch it live here.
Jamie Dimon Says They Didn’t Model Massive House Price Collapse - Via Megan McArdle – Kevin Drum is shocked to find Jamie Dimon admitting that they weren’t modeling a total collapse in house prices. I’m shocked to find that Kevin is shocked. That’s pretty much the standard explanation–at least, a partial one–for why lenders became willing to take on so much risk. Massive house price depreciation had pretty much dropped out of their models, which mostly focused on prepayment risk.
The impact of class size on the performance of university students - Via Voxeu – The effect of increasing class size in tertiary education is not well understood. This column estimates the effects of class size on students’ exam performance by comparing the same student’s performance to her own performance in courses with small and large class sizes. Going from the average class of 56 to a class size of 89 would decrease the mark by 9% of the observed variation in marks within a given student. The effect is almost four times larger for students in the top 10%.
Markets on Trial: The Economic Sociology of the U.S. Financial Crisis - Via Alberta.ca – Going beyond conventional Economic theories, Economic Sociologists enhance our understanding of the recent financial crisis and provide policy recommendations
THE NEXT HUNDRED MILLION: America in 2050 - Via Wilson Quarterly – Joel Kotkin, along with his some-time nemesis Richard Florida, is perhaps the leading purveyor of a kind of psychoeconomic demography, a predictive chronicler armed with Census tract data, Pew surveys, and some old-fashioned shoe-leather reporting, all recounted in an urgent, assuaging, insider-y tone—a kind of Kiplinger Report for the national soul. I can imagine Kotkin and Florida randomly encountering each other—in, say, the Admiral’s Club at DFW, as each is en route to his assignation with civic leaders eager to sup the sooth—and engaging in a dueling-PowerPoint exercise, with Florida touting his “creative class” metropoles and their cappuccino-fueled dynamism, and Kotkin his “ephemeral cities”—places such as Portland that are elaborate stage sets for hip urban play, ultimately overregulated and hostile to the wants of average Americans, who would find fuller expression of their economic (and reproductive) potential in a place such as Boise. Only one man would be left standing amid the acrid tang of overheated hard drives, but I’m not sure which.
Property: The Great Problem Solver - Via Mises – Most social problems which perplex national leaders could be solved fairly simply by an increase in the amount and type of property owned. This would entail the equally important, general recognition that ownership is and must be total, rather than merely a governmental permission to possess and/or manage property so long as certain legal rules are complied with and “rent” in the form of property taxes is paid. When a man is required to “rent” his own property from the government by paying property taxes on it, he is being forbidden to fully exercise his right of ownership. Although he owns the property, he is forced into the position of a lessee, with the government the landlord.
Video: Sam Zell On Real Estate -
Monetary policy in the crisis – past, present, and future - ViaBIS – As a prelude to discussing where we are now and issues for the future, I thought it would be helpful to summarize the actions that we took over the past two years. In August 2007, we recognized that we were coping with a potentially serious disruption in financial markets that could feed back adversely on the economy and job creation. With liquidity in key funding markets drying up and some securitization markets closing down, lower policy interest rates alone were not going to be enough to keep financial conditions from tightening severely for households and businesses. In the end, we had to operate on multiple fronts to stabilize the financial markets and foster a rebound in the economy.
Ten Thoughts for Ordering Governance Relationships in 2010 – Via HLS – As the 2010 proxy season nears, we encourage both boards and shareholders to rethink the contours of their relationship. We expect institutional shareholders to have greater influence in director elections this year given the increasing prevalence of majority voting requirements and, for the first time, the absence of discretionary voting by brokers of uninstructed shares. Institutional shareholder power will expand further in 2011 if the SEC moves forward with proxy access rules and Congress enacts legislation mandating majority voting and “say on pay.” In this environment, boards and shareholders will be well served by considering in an open way how this shift in influence should be reflected in changes in behavior.
Optimal Auction Design and Equilibrium Selection in Sponsored Search Auctions – Via HBS – Reserve prices may have an important impact on search advertising marketplaces. But the effect of reserve prices can be opaque, particularly because it is not always straightforward to compare “before” and “after” conditions. HBS professor Benjamin G. Edelman and Yahoo’s Michael Schwarz use a pair of mathematical models to predict responses to reserve prices and understand which advertisers end up paying more.
Labor Regulations and European Private Equity - Via HBS – European nations substitute between employment protection regulations and labor market expenditures (e.g., unemployment insurance bene ts) for providing worker insurance. Employment regulations more directly tax rms making frequent labor adjustments than other labor insurance mechanisms. Venture capital and private equity investors are especially sensitive to these labor adjustment costs. Nations favoring labor expenditures as the mechanism for providing worker insurance developed stronger private equity markets in high volatility sectors over 1990-2004. These patterns are further evident in US investments into Europe. In this context, policy mechanisms are more important than the overall insurance level provided.
Other Interesting Articles:
California: The Coast of Dystopia – Via NY Mag – I didn’t move to California to become a “Californian.” I usually say that I came for a job; the truth is, I was young and in love and I followed a boy. That was 21 years ago, and much to my surprise, I’m still here. The relationship fizzled, but I was seduced by the romance of the state. I’d become a true believer in the California dream, right as it began to fall apart.
How To Teach Descartes’ Meditations: ‘Every Virtue and But One Small Defect’ edition, Part I – Wax and World – Via Crooked Timber – Descartes’ Meditations is one of the more frequently assigned primary texts from the whole history of philosophy. And yet it’s a screwy old thing: supposed to inaugurate Modern Philosophy (a.k.a. European philosophy from the 17th to 19th Century, givertake). But tangled up with medieval philosophy notions and heavily dusted with contents of the dustbin of history of science (no matter how hard you try to keep it clean). So how to teach it?
The Difficulty of Modifying Second Mortgages – Via McArdle – One of the many obstacles to resolving the housing mess is that so many people during the boom used their houses as piggybanks, taking out second mortgages and helocs that were often originated by different banks from the originator of the first lien mortgage. In order to do a short sale–or much of anything short of foreclosure–you need to get the second lien holder on board. This is even harder than getting your first mortgage holder to help you, since there’s usually nothing in it for the second guy in line except a sure and certain loss. The Obama administration has made some efforts to pull the second lien servicers into the process, but the results have been even more pitiful than the single-loan modification process.
Infographics: (Click On Image For Larger Version)
The Growth Of Filing Online Taxes (Via Data Viz & Chart Porn)
The Apple App Store Economy
Via Data Viz & Chart Porn