I spend 8 hours every Sunday putting this together…If you like this roundup kindly include a reference to SimoleonSense.com .Thanks!
Weekly Cartoon (Via Google ):
Weekly Joke (Via Econosseur):
Christopher Columbus was perhaps the first economist. When he left to discover America, he didn’t know where he was going. When he got there, he didn’t know where he was. When he returned, he didn’t know where he had been. And it was all done on a government grant!
Most Important Article(s) Of The Week!!!!!!!
The Evolution of Fraud – Via False Profits – As business has grown more complex, fraud has evolved and adapted accordingly. Multi-level marketing (MLM), the most common form of pyramid/ponzi fraud, is the product of years of evolutionary adaptation in the scam and swindle field, matching the adaptation of the legitimate marketplace. Public awareness and law enforcement always lag behind new forms of fraud. The success of MLMs and other financial Ponzis at duping millions of people, rich and poor, educated as well as illiterate, shows that public understanding has not caught up to this new mutation. A study of consumer fraud’s evolution shows three stages that parallel the three levels of development in American business. America evolved from leading the world in manufacturing (now China) to becoming the financial capital of the world (now moving to Asia/Europe/Middle East), to our present status as the world leader of consumer-purchases driven by marketing.
Howard Zinn, historian who challenged status quo, dies at 87 - Via Boston – Howard Zinn, the Boston University historian and political activist who was an early opponent of US involvement in Vietnam and whose books, such as “A People’s History of the United States,” inspired young and old to rethink the way textbooks present the American experience, died today in Santa Monica, Calif, where he was traveling. He was 87.
Mortgage Packagaing Was Not New: Lessons From The Roarin 20′s - Via NYT – The original wave of securitizations took place in the 1920s, when the United States went on the greatest building boom ever. Many investors saw how rapidly real estate prices were rising and wanted in on the action. The builders and brokers were only too happy to oblige.
Ed Chancellor: Reports On The Growing Concerns In China: China: hard to extinguish speculators’ animal spirits - Via FT – Recent moves in Beijing to tighten lending conditions have spooked Chinese investors. Given that easy money fuels asset price bubbles, it is tempting to believe that the withdrawal of liquidity signals an imminent end to the good times. However, history suggests that once a boom has got going, it takes several sharp blows with the monetary cudgel to extinguish the speculators’ animal spirits
Miguel’s Weekly Favorites:
Happy peasants and miserable millionaires: Happiness research, economics, and public policy – Via Voxeu – What measures of human wellbeing are the most accurate benchmarks of economic progress and human development? This column presents new research suggesting that while people can adapt to be happy at low levels of income, they are far less happy when there is uncertainty over their future wealth. This may help explain why different societies tolerate such different levels of health, crime, and governance, and why US happiness plummeted during the global financial crisis but has since been restored despite incomes remaining lower.
From Davos, predicting the next economic crisis - Via Washington Post – Harvard economist Kenneth Rogoff kicked off the Wednesday discussion with a simple, depressing argument: The banking collapse is morphing into a long-term crisis of government debt. Instead of financial panic, we now face an “illusion of normalcy,” with governments stepping in to guarantee everything. They’ve succeeded in fending off another Great Depression — great! — but at the cost of skyrocketing debt. And if history is any guide, he said, financial crises are often followed precisely by a wave of sovereign debt crises a few years later. “In countries like the United States and Britain, I’m not talking about default, but we certainly may have to see very painful political crises,” Rogoff predicted, “belt tightening, higher taxes, slower growth.”
Interdisciplinarity in Socio-economics, mathematical analysis and predictability of complex systems - Via Arxiv – n this essay, I attempt to provide supporting evidence as well as some balance for the thesis on `Transforming socio-economics with a new epistemology’ presented by Hollingworth and Mueller (2008). First, I review a personal highlight of my own scientific path that illustrates the power of interdisciplinarity as well as unity of the mathematical description of natural and social processes. I also argue against the claim that complex systems are in general `not susceptible to mathematical analysis, but must be understood by letting them evolve over time or with simulation analysis’. Moreover, I present evidence of the limits of the claim that scientists working within Science II do not make predictions about the future because it is too complex. I stress the potentials for a third `Quantum Science’ and its associated conceptual and philosophical revolutions, and finally point out some limits of the `new’ theory of networks.
Confirmation Bias, The Investor’s Curse – Via PsyFi Blog – The problem of confirmation bias – the tendency of people to seek evidence confirming an already held opinion and to avoid looking for that which might upset their carefully constructed mental models has attracted a lot of attention from researchers. It occurs across all domains of human endeavour and triggers all sorts of implausible behaviour, yet investors and institutions remain in its thrall.
The Economist: A special report on social networking: A world of connections – Via Economist – Online social networks are changing the way people communicate, work and play, and mostly for the better, says Martin Giles
BBC Looks at Hawthorne Effect: – Via Situationist – For some interesting listening, here is an excellent BBC podcast looking at the 1920s experiment in a Chicago factory that gave rise to the phenomenon known as the Hawthorne Effect.
Robert Shiller : Stuck in Neutral? Reset the Mood - Via NYT – THE United States and other advanced economies may be facing a long, slow period of disappointing growth….In reality, business recessions are caused by a curious mix of rational and irrational behavior. Negative feedback cycles, in which pessimism inhibits economic activity, are hard to stop and can stretch the financial system past its breaking point.
How to Reform Our Financial System – Via NYT – PRESIDENT OBAMA 10 days ago set out one important element in the needed structural reform of the financial system. No one can reasonably contest the need for such reform, in the United States and in other countries as well. We have after all a system that broke down in the most serious crisis in 75 years. The cost has been enormous in terms of unemployment and lost production. The repercussions have been international.
How mating affects people’s decisions about spending and giving - Via The Indian – Researchers have found that thinking about mating can significantly influence people’s decisions about spending and giving.
Moving Through Time: Thinking of the Past or Future Causes Us to Sway Backward or Forward - Via Science Daily – Although we can’t technically travel through time (yet), when we think of the past or the future we engage in a sort of mental time travel. This uniquely human ability to psychologically travel through time arguably sets us apart from other species.
Your Politics Your Portfolio - When a Portfolio Is Red or Blue - Via NYT – YOU’RE likely to feel more confident about the economy when your political party is in power. That’s no surprise. But a new study has found that your feelings probably affect the way you invest your stock portfolio
VIdeo: Stiglitz: Freefall: America, Free Markets and the Sinking of the World Economy - On January 21, 2010, Nobel Laureate and Economics Professor Joseph Stiglitz presented his new book, Freefall: America, Free Markets, and the Sinking of the World Economy at the World Bank. The event was sponsored by the World Bank’s Poverty Reduction and Economic Management Network (PREM) and chaired by PREM Vice-President Otaviano Canuto. The book assesses the impact of the financial crisis and forecasts patterns in the international economy for years to come.
Universal and culture-specific recognition of emotions – Via Cognition & Culture – Emotional signals are crucial for sharing important information, with conspecifics, for example, to warn humans of danger. Humans use a range of different cues to communicate to others how they feel, including facial, vocal, and gestural signals. We examined the recognition of nonverbal emotional vocalizations, such as screams and laughs, across two dramatically different cultural groups. Western participants were compared to individuals from remote, culturally isolated Namibian villages. Vocalizations communicating the so-called “basic emotions” (anger, disgust, fear, joy, sadness, and surprise) were bidirectionally recognized. In contrast, a set of additional emotions was only recognized within, but not across, cultural boundaries. Our findings indicate that a number of primarily negative emotions have vocalizations that can be recognized across cultures, while most positive emotions are communicated with culture-specific signals.
Monetary Cycles, Financial Cycles, and the Business Cycle – Via NY Fed – One of the most robust stylized facts in macroeconomics is the forecasting power of the term spread for future real activity. The economic rationale for this forecasting power usually appeals to expectations of future interest rates, which affect the slope of the term structure. In this paper, we propose a possible causal mechanism for the forecasting power of the term spread, deriving from the balance sheet management of financial intermediaries. When monetary tightening is associated with a flattening of the term spread, it reduces net interest margin, which in turn makes lending less profitable, leading to a contraction in the supply of credit. We provide empirical support for this hypothesis, thereby linking monetary cycles, financial cycles, and the business cycle.
Exclusive Features : (The Must Reads)
Investment Losses Cause Steep Dip in University Endowments, Study Finds – Via Reflecting the difficult financial environment for higher education, university endowments lost an average of 18.7 percent in the last fiscal year, the worst returns since the Great Depression, according to a study of hundreds of public and private institutions.
Why do high-end prostitutes make so much money? - Via Marginal Revolution- In this paper, we present evidence from high-end prostitution, the so called escort market, a market that is, if not entirely safe, notably safer than street prostitution. Analyzing wage information on more than 40,000 escorts in the U.S. and Canada collected from a web site, we find strong support for EK. First, escorts in the sample earn high wages, on average $280/hour.
The Growing Underclass: Jobs Gone Forever – Via NYT – But one major obstacle to that goal — and one that has so far gone mostly unacknowledged — is that many of the jobs slashed during this recession are not coming back.
Five myths about America’s credit card debt - Via Washington Post – They’re yuppie food stamps. They give new meaning to the question “paper or plastic?” And they’re in everyone’s wallet. Americans have nearly 700 million all-purpose bank credit cards, plus nearly 500 million retail store cards — and they have transformed how we live and consume. Today, Americans are more dependent on credit than savings, a radical departure from the last major economic crisis, in the 1930s. Congress’s effort to change that, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act signed by President Obama last spring, will go into effect in a few weeks. But it won’t fix everything. Or maybe not much of anything. Here are the myths that muddle our understanding of how we’ve racked up so much credit card debt.
Finance & Investing:
Is Barter Countercyclical? - Via Canadian Initiative – The Wall Street Journal (H/T Peter Gordon) says that barter is countercyclical. Barter increases in recessions, like now, and decreases in booms. Can anyone confirm this? Because that fact (if it is a fact) is really important in understanding the nature of business cycles and recessions. Countercyclical barter is exactly what one would predict from a monetary (deficient aggregate demand) theory of recessions. It makes no sense from a real business cycle or recalculation theory of recessions. And the very existence of barter, even in normal times and booms, is evidence in favour of doing macroeconomics with monopolistic competition.
A Historical Look at the Labor Market During Recessions – Via Dallas Fed – Turmoil in housing, credit and financial markets plunged the U.S. economy into a recession that has taken a heavy toll on the labor market. The weakness that began during the second half of 2007 gravely worsened during a period of extreme financial stress in 2008, and the labor market has yet to recover.
The financial crisis in Iceland and the fault lines in cross-border banking - So what I will present here today is unavoidably a partial picture.1 You could say that it is just as well, for this is a complex saga with many twists. To paint with a broad brush, we can say that economic and financial developments in Iceland during the last decade or so are a combination of two separate but interrelated stories. On the one hand, there is Iceland’s boom-bust cycle and problems with macroeconomic management in small, open and financially integrated economies. This is a well known story that has played out in Iceland and other countries several times. On the other hand, we have the story of the rise and fall of three cross-border banks operated on the basis of EU legislation
Shadow banking, financing markets and financial stability – Via BIS – This evening I am going to focus on one part of the “structure” debate: shadow banking. It has become commonplace that shadow banking somehow exacerbated the boom, and complicated the rescue efforts of the authorities during the bust.1 That is true. But there has been relatively little discussion about what this means for policy.
Video: How Oakmark Puts a Currency Hedge On – Via Morningstar – The Oakmark manager explains the firm’s policy of hedging only when the foreign currency looks 20% or more overvalued–and where their hedges are today.
Video: Herro Answers ‘Why Go Overseas?’ – VIa Morningstar – Any time you can broaden your subset, broaden your investable universe, you have a higher probability of achieving success, says the Oakmark manager.
Attention Activist Investors – The Altman Group: Governance Compendium - Via Activist Investor Blog -The proxy solicitation firm The Altman Group recently put together their first edition of “Governance Compendium Series”. The contributions are very good and cover a wide range of topics. The .pdf can be downloaded
1 Year Later: SPAC Returns - Via Activist Investor Blog – Last January we (Hedge Fund Solutions) wrote an article for TheStreet.com’s RealMoney that discussed the no-downside risk of investing in Special Purpose Acquisition Companies – SPACs. In the piece we highlighted 19 SPACs trading at an average 5% discount to their trust value. All 19 companies needed to buy an operating company within 12 months.
Videos & Media
Bill & Melinda Gates @ Davos – Via Manual Of Ideas
Health Care Reform in the U.S.: What Will it Look Like and What Does it Mean? – Via MIT –
How the big banks make the big bucks – Via Vimeo
Esther Duflo: Ending Poverty – Via POPTech -
Esther Duflo, MIT economist and co-founder of the Poverty Action Lab, asks why the world’s poorest people tend to stay poor. Duflo’s pioneering research applies randomized trials, used extensively in drug discovery research, to development economics. What she discovers are strategies for transforming current approaches to development policy.
Universal statistical properties of poker tournaments - Via Arxiv.org- We present a simple model of Texas hold’em poker tournaments which retains the two main aspects of the game: i. the minimal bet grows exponentially with time; ii. players have a finite probability to bet all their money. The distribution of the fortunes of players not yet eliminated is found to be independent of time during most of the tournament, and reproduces accurately data obtained from Internet tournaments and world championship events. This model also makes the connection between poker and the persistence problem widely studied in physics, as well as some recent physical models of biological evolution, and extreme value statistics.
The Measurement of Rent Inflation - Via Federal Reserve of Ny – providing for shelter represents a large portion of the typical household budget. Accordingly, rent, paid either to a landlord or to oneself as an owner-occupant, has a large weight in the CPI and in the personal consumption expenditures deflator, resulting in substantial scrutiny of how tenant rent and owners’ equivalent rent are measured in these price indexes. In this paper, we describe how the Bureau of Labor Statistics (BLS) estimates tenant rent and owners’ equivalent rent. We then estimate alternative inflation rates for tenant rent and owners’ equivalent rent based on American Housing Survey data, following BLS methodology as closely as possible. Our alternative tenant rent inflation series is generally consistent with the corresponding BLS series. However, our alternative owners’ equivalent rent inflation series is consistently lower than the corresponding BLS series by an amount large enough to have a significant effect on the overall inflation rate. This result is driven by the inverse relationship between rent inflation and the level of monthly housing cost evident in the American Housing Survey data.
Can the strategic use of coffee make you more persuasive? - Via Bakadeysuo – Two experiments are reported that examine the effects of caffeine consumption on attitude change by using different secondary tasks to manipulate message processing. The first experiment employed an orientating task whilst the second experiment employed a distracter task. In both experiments participants consumed an orange-juice drink that either contained caffeine (3.5 mg/kg body weight) or did not contain caffeine (placebo) prior to reading a counter-attitudinal communication. The results across both experiments were similar. When message processing was reduced or under high distraction, there was no attitude change irrespective of caffeine consumption. However, when message processing was enhanced or under low distraction, there was greater attitude change in the caffeine vs. placebo conditions. Furthermore, attitudes formed after caffeine consumption resisted counter-persuasion (Experiment 1) and led to indirect attitude change (Experiment 2). The extent that participants engaged in message-congruent thinking mediated the amount of attitude change. These results provide evidence that moderate amounts of caffeine increase systematic processing of the arguments in the message resulting in greater agreement.
Other Very Interesting Articles:
Thomas Friedman: Never Heard That Before – Via NYT – As a political barometer, the Davos World Economic Forum usually offers up some revealing indicators of the global mood, and this year is no exception. I heard of a phrase being bandied about here by non-Americans — about the United States — that I can honestly say I’ve never heard before: “political instability.”
2010 Lemelson-MIT Invention Index reveals ways to enhance teens’ interest in STEM – Via Physorg- The nation is hoping for a bright future. Many believe the key to strengthening the U.S. economy and competing globally lies in fostering an innovative culture and educating America’s youth in science, technology, engineering and mathematics (STEM). According to this year’s Lemelson-MIT Invention Index , an annual survey that gauges Americans’ perceptions about invention and innovation, teens are enthusiastic about these subjects, with 77 percent interested in pursuing a STEM career.
Doctors cut back hours when risk of malpractice suit rises - Via Eureka Alert – A new study shows that the number of hours physicians spend on the job each week is influenced by the fear of malpractice lawsuits. Economists Eric Helland and Mark Showalter found that doctors cut back their workload by almost two hours each week when the expected liability risk increases by 10 percent. The study, published in the new issue of the Journal of Law and Economics, notes that the decline in hours adds up to the equivalent of one of every 35 physicians retiring without a replacement.
Is South America on the brink of an arms race? - Via Policy Pointers – A Swedish essay examining whether an arms race is looming in South America
IBEX 35: 1991-2009 – Value Creation and Return – Via SSRN – We compute the shareholder value creation and the return of the companies in the IBEX 35 for the 18-year period 1991-2009. The average return was 12.5%, but 4.4% was due to the decline in interest rates (from 13% to 4%). The shareholder value creation in the whole period was 101 billion euros, despite a value destruction of 238 billion euros in 2008.