Presidential Economics: What Leaders Can and Cannot Do about the State of the Economy by Russell Roberts

"A President can no more stimulate the economy in the short run than you can make a child grow a foot in a week."

The Presidential campaign season is about to go into full swing. The conventions are coming, to be followed by a barrage of advertising and then almost certainly, we will have debates. Much of the focus will be on Iraq and American foreign policy, but inevitably, the economy and its performance over the last four years will play a crucial role in the campaign. 

 

John Kerry will focus on the mediocre performance of the economy, particularly the job market, in the first part of the Bush Administration. Bush will tout the performance of the economy over the last year or so as long as the job numbers continue to be rosy through the fall. Implicit in this discussion are two strange assumptions. The first is that the President “runs” the economy. The President hardly even runs the government. He certainly cannot direct the fortunes and failures of millions of workers, managers, investors and entrepreneurs. The second implicit assumption is that the success or failure of the President depends on his ability to “stimulate” the economy, as if the economy were an engine that simply needed a different setting for its carburetor or as if it were a lazy steer that needs prodding to speed its way on a cattle drive. 

Read More:

http://www.econlib.org/library/Columns/y2004/Robertsleaders.html

Is Society a Great Big Insurance Company? by Anthony de Jasay

Every epoch and every culture tends to have a magic form of words, an argument-stopper that trumps contrary thoughts, contrary wishes. Throughout the Christian era, "it is God's will" sufficed to settle an issue, and in the Moslem world, much the same words still suffice to do so. During the Enlightenment, the voice of an idealised Reason took over. "Progress" had its day, as did "The National Interest". "Democracy", "Equality" and "Social Justice" are currently running neck and neck. "It is Not Healthy" is a strong contender for filtering out what must not be done, but probably nothing is now more powerful than the kneejerk rejection of anything that "Is Not Safe". 

A great variety of reasons conspire to create a "safety first" culture. Many originate in one of the perverse features of modern society: that the risks, costs and benefits of a given course of action accrue to different persons. Since September 11, 2001, hundreds of millions of airline passengers have suffered delay and inconvenience and the airlines and airports were made to incur billions of dollars of extra expense to maintain pre-boarding "security". The security checks may cause an infinitesimal reduction in the risk of a terrorist boarding the plane with explosives round his waist, and possibly an infinitesimal increase of the risk that he will place the bomb in the suitcase he consigns to the luggage compartment. 

 

Patting down millions of respectable matrons before letting them board their plane costs a great deal, causes irritation and no perceptible improvement in security. They cause neither irritation nor cost to the regulators who impose these checks at the airports. However, if they relaxed the controls, all the benefits would go to the airline industry and its hundreds of millions of nameless passengers, and none to the regulators. The passengers would not think of thanking them, nor would they have a face-to-face chance of doing so. Should, however, a suicide bomber blow up a plane after controls have been relaxed, the regulators would be lucky to escape being crucified by the media. 

 

Read More:

http://www.econlib.org/library/Columns/y2010/Jasayinsurance.html

is Hyper-Inflation Real?

Obscure book by British adviser becomes cult hit after Warren Buffett tip

An obscure book about the collapse of the German economy in the 1920s has become cult reading among leading financiers, after a tip from billionaire investor Warren Buffett. 

Mr Buffett, known as the Sage of Omaha because of his shrewd investments, apparently told friends that When Money Dies illustrated what could happen today if European governments attempt to spend their way out of the downturn.

Written in 1975 by Adam Fergusson, a one-time adviser to Tory minister Lord Howe, the book charts how the German economy was ruined by hyperinflation after the Weimar government allowed public spending to run out of control.

read more:

http://www.telegraph.co.uk/finance/financetopics/recession/7883931/Obscure-book-by-British-adviser-becomes-cult-hit-after-Warren-Buffett-tip.html

 

Seth Godin's Blog

Suggested Reading:

http://sethgodin.typepad.com/seths_blog/

Every monster has a big shadow

That's what makes it a monster.

In fact, when you look the monster in the eye, when you calmly and carefully inspect the actual monster, you discover that he's not so bad after all. It's just the shadow that's scary.

When in doubt, ignore the shadow.

The path to energy futures: the long march with pitfalls by Shellie Karabell, Brussels

There is an obvious connection between energy and economic growth: cheap fuel means lower production costs. As energy consumption is on an upward trajectory -with growth in the Far East and Latin America outpacing the industrialised countries in the near term - the key to prosperity is to develop cheaper and sustainable sources of fuel to replace fossil fuels and curtail the environmentally-unfriendly carbon footprint. 

 ..........

Even using all available sources of today’s energy, there are bound to be shortages, according to Gazprom’s Deputy Chairman, Alexander Medvedev. “Production demand in Europe, in a conservative forecast, will be half a trillion cubic metres by 2030; that’s 500-billion cubic metres a year. If you add together all the capacities of NorthStream, SouthStream, Nabuka, etc...there will still be a gap (between output and demand). So it’s necessary to invest now so nobody will fall into that gap.” 

Read More:

http://knowledge.insead.edu/EBS-energy-strategy-100726.cfm?vid=454

Price Earnings Ratio of PSEi at 10.62 - BUY?

God Hinting At Retirement

THE HEAVENS—At a press conference Tuesday, God Almighty, our Lord and Heavenly Father, gave his strongest indication yet that he might soon step down from his post as the supreme ruler of all things.

Following a routine address during which God confirmed the recent extinction of several thousand species, the Divine Creator fielded questions regarding rumors of his possible retirement.

"I've been at this a long time," said God, ∞, the all-knowing, all-powerful being who has presided over the cosmos since forming it from sheer nothingness nearly 14 billion years ago. "And the truth is, this was never something I planned on doing forever. Lately, in fact, I've begun to wonder if I should move on sooner rather than later."

Over the past few centuries, God has on numerous occasions deflected speculation that his reign might be winding down, but his remarks Tuesday appeared to signal a shift in celestial policy.

While touting his accomplishments as the prime mover of all space and time, the Lord spoke with surprising candor about the recent struggles of his absolute dominion over heaven and earth, acknowledging that it hasn't always been easy for him to keep up with the rapid pace of modern existence.

read more:

http://www.theonion.com/articles/god-hinting-at-retirement,17747/

Getting the Most Out of Life: "The Concept of Opportunity Cost" By Russell Roberts

One of the challenges of being an economist is explaining what you do for a living. People understand that one of the things a professor of economics does is teach economics. But what is that, exactly? Most presume it has something to do with investing and financial management. When I once told my seatmate on an airline flight that I was an economist, she said, what a shame, my husband loves the stock market. Hmm. I didn't tell her that other than the advantages of investing in indexed mutual funds, I know next to nothing about the stock market. 

 

My seatmate might have profited from reading Alfred Marshall who called economics "the study of mankind in the ordinary business of life." This was the enterprise of Marshall and Adam Smith and Friedrich Hayek and Milton Friedman: they tried to understand what people do and the implications of their behavior for the society at large. 

But my favorite definition of economics is a variant of Marshall's. It comes from a student who heard it from another teacher of hers: economics is the study of how to get the most out of life. I like this because it strikes at the true heart of economics—the choices we make, given that we can't have everything we want.  

Economics is the study of infinite wants and finite means, the study of constrained choices. This is true for individuals and governments, families and nations. Thomas Sowell said it best: no solutions, only tradeoffs. To get the most out of life, to think like an economist, you have to be know what you're giving up in order to get something else. That's all opportunity cost is: 

Opportunity cost is what you have to give up to get something. 

read more:

http://www.econlib.org/library/Columns/y2007/Robertsopportunitycost.html

The Financial Planning Process

If knowledge is power, then perhaps the most powerful knowledge you could have would be self-knowledge. Let's approach financial planning as nothing more than a lifelong process of updating certain aspects of your self-knowledge. While planning for and reacting to life events is often more art than science, through financial planning we can at least try to deal with the quantitative aspects of some possible scenarios and their consequences.

Navigating competently through the life stages of employment, marriage, home ownership, parenting, eldercare, divorce, retirement and ultimately death -- and all the stops in between -- requires knowledge acquired through continual self-education. The conscious management of your financial circumstances, however modest they may be from time to time, will enable you to anticipate opportunities and prepare for contingencies. This approach should give you better choices when life's inevitable events, adverse or otherwise, occur.

Let's begin by helping you determine where you are now -- your starting point in your quest for self-knowledge! Then we'll encourage you to decide where you want to be, helping you to define goals and objectives for the future. The next step will be developing a road map for getting from Point A to Point B. Then it's on to the nuts and bolts of the planning process: investing, managing risk and insurance, handling debt and credit, understanding the all-important concept of the time value of money, and planning for your retirement and your estate.

read more:

http://finance.toolkit.com/planning_guide/display.aspx?nid=c10s00d010

PSE Update on Earnings of Listed Companies - 1Q2010

Opportunity Cost by David R. Henderson

When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you cannot spend the money on something else. If your next-best alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure you forgo by not reading the book.

 

The word “opportunity” in “opportunity cost” is actually redundant. The cost of using something is already the value of the highest-valued alternative use. But as contract lawyers and airplane pilots know, redundancy can be a virtue. In this case, its virtue is to remind us that the cost of using a resource arises from the value of what it could be used for instead.
 
more on:

http://www.econlib.org/library/Enc/OpportunityCost.html

 

What is the True Measure of Wealth?

My Bucket List, What's Yours?

Why the Rich Gets Richer?

Please take note of their portfolio allocation, data from an OECD study released 2008

5 Strategic Options in Managing Investment Risk

 

 

 

Why stocks moves with an upward bias?

• Assuming that the price of one share of SM is Php 100 when it first opened in 1972
• Since then SM had expanded its business nationwide (30+ malls nationwide and some overseas)
• What is the possibility that the price of SM today will go back to Php 100?

Is there any reason for the PSEi to go up further from these levels?

Global Ranking of Gross International Reserves - Top 10, Philippines, P.I.G.S. and Haiti

Retrospective or Prospective?

Insular Life's Wealth Builder Equity Fund as of June 28, 2010, its net asset value per unit (navpu) has more than doubled since inception in 2005, for existing policyholders, is it time to take profits?

a retrospective view (based on the past) will lead to a "logical" conclusion that it made sense to take profits now and wait for it to correct before going back again, but is this the right decision? When i am investing money to fund future goals, should my action be retrospective or prospective, if i assume a growth rate of 8.0% per year (prospectively) over the next several years, i am seeing the navpu to rise to the Php 3.00 level, is the current level of Php 2.06 too high already?

Will my equity fund go up further?

IS IT TIME TO SELL? As the net asset value per share/unit of my equity fund reached its highest level since inception, is it now time to cash in and wait for it to “correct” downwards before going back again?

To answer this question, let us go back to the lessons of history, please observe below the chart of a major world index, much like our PSEi index it established an “all time high” towards the end of 1991, (we normally use a stock index as reference point because an equity fund invests in the basket of stocks that comprises the composition of an index), the question in the mind of most investor then is similar to what we have today, is it time to sell? 

 

Behavioral psychologist have a term for a normal human reaction of using past experience as a basis for estimating future performance, they called it "anchoring" - in relation to the past, current levels seem high already, so it would be "logical" to take profits now and just re-enter the market when the net asset value per share/unit corrects downward.

if investors then have succumbed to this tendency, they would have lost out on the greatest bull run of the US stock market. Because as history would have shown, from a level of 3,500, it marched on to 14,000 in the next few years. (the portion enclosed in the red box is the chart shown above)

 

is it now time to sell?